III. Suppose the country succeeds in the establishment of a government entity (G). Also, it decides to
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III. Suppose the country succeeds in the establishment of a government entity (G). Also, it decides to open its economy to international trade such that the new economy is defined by the following functions:
C = 100 + 0.5Yd
I = 50
G = 100
NX = 30
TR = 50
TA = 25
- Find the equilibrium level of income and multiplier in this model.
- Suppose governments transfers (TR) increases to 100, what is the effect of this change on the equilibrium level of income? What is the new equilibrium level of income?
- Calculate the budget surplus (BS).
- Draw a diagram indicating equilibria in both part III (a) and part III(b).
- Suppose the government decides to impose a proportional income tax (t) instead of lumpsum taxation such that t = 0.2. Using the information provided in part (III), calculate the equilibrium level of income and the multiplier in this model.
- Calculate the budget surplus in the economy, BS.
- Suppose that t increases to 0.25. What is the new equilibrium income? The new multiplier?
- What is the value of the multiplier when t =1? Can you explain why?
- Draw a diagram indicating equilibria in both part IV(a) and part IV(c).
Related Book For
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr
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