Suppose a consumption function C= 100+0.8(Y-T) , government spendings are 200 and taxes are proportional to income. T=tY. 1) what is the equilibrium GDP in terms of t. 2) What os the government spending multiplier ? Does it increase with a tax increase t? 3) If t=0.25 , What is then the equilibrium GDP? What is the government budget surplus or deficit in this situation?

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To find the equilibrium GDP and analyze the government spending multiplier lets go through each question step by step 1 Equilibrium ... View the full answer