Consider the following information for a country: Consumption Function: C 850.8Y

Question

Consider the following information for a country: Consumption Function: C 850.8Yd Investment Function: 85 Government Spending: G60 Net Taxes: Disposable Income: Yd -Y-T Equilibrium: -50 +0.25Y Y-C+I+G The level of equilibrium income, Y = S Enter your response rounded to two decimal places) The amount of taxes collected by the government at equilibrium, T,-(Enter your response rounded to two decimal places.) The budget deficit at equilibrium, (G T),- (Enter your response rounded to two decimal places and include a minus sign if necessary.)

Explanation / Answer

a - Y = C+I+G = 85+0.8( Y+50-0.25Y) + 85+ 60

Y = 230+0.6Y+40

SO Y = 270/0.4 =675

B- TAXES ARE GIVEN BY  

T = -50+0.25Y = -50+0.25(675) = 118.75

C - DEFICIT = G-T = 60-118.75 = 58.75

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