N1

3) Suppose that the consumption function is given by: C = a + bYD. G=Go+gY T=T0+ f Y 1:10 A. Find output in equilibrium. B. Show how does an increase in the tax rate 2' affect the equilibrium level of C and Y. C. Write the budget balance as a function of Y. D. what will happen to Y if g and? rise by the same magnitude at the same time? And, what will happen to the budget balance? E. Show the expression for the government spending multiplier. Explain how do the different parameters/variables affect this multiplier