Simple closed economy income-expenditure model
With reference to the simple closed economy income-expenditure model,
suppose the aggregate consumption function is C = 100 +0.8(Y – T); taxes are
T = 10 + 0.25Y; investment, I, is 300 and government expenditures, G, are 200.
(a) Calculate equilibrium income, consumption and the government budget
surplus. [20 marks]
(b) Calculate the level of income that equates taxes to government
expenditures. [10 marks]
(c) Calculate the government expenditure multiplier.
[10 marks]
|