Consider the following information for a country: Consumption Function: C = 85 +

ID: 1157269 • Letter: C

Question

Consider the following information for a country:

Consumption Function: C = 85 + 0.8Yd

Investment Function: I = 85

Government Spending: G = 150

Net Taxes: -40 + 0.25Y

Disposable Income: Yd = Y - T

Equilibrium: Y = C + I + G

A)- The level of equilibrium income, Y, = ??? (Enter your response rounded to two decimal places.)

B)- The amount of taxes collected by the government at equilibrium, T, = ??? (Enter your response rounded to two decimal places.)

C)- The budget deficit at equilibrium,(G ? T),= ??? (Enter your response rounded to two decimal places and include a minus sign if necessary.)

A) C = 85 + 0.8 Yd = 85 + 0.8 ( Y - T) = 85 + 0.8Y - 0.8 ( -40 + 0.25Y) = 85 + 0.8Y + 32 - 0.2Y = 117 + 0.6Y

At equilibrium, Y = C + I + G

Or, Y = 117 + 0.6Y + 85 + 150 = 352 + 0.6Y

Or, 0.4Y = 352

Or, Y = 880

The level of equilibrium income, Y = 880.00

B) Amount of tax collected at equilibrium = - 40 + 0.25(880) = 180

Answer: 180.00

C) Budget deficit = G - T = 150 - 180 = - 30

Answer = - 30.00

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