For this problem think about the goods market. Suppose the consumption equation

Question

For this problem think about the goods market. Suppose the consumption equation is represented by the following: C = 200 + 0.75 Y_D (where Y_D is disposable income), that investment is fixed I = I), and that government expenditures and taxes are determined exogenously. Suppose the economy is currently in equilibrium, but the government decides that it wants to achieve two goals: lead the economy to more output, and keep the government deficit at the current level. To achieve this, the government decides to increase both government expenditures and taxes. These increases will cause output to grow by more than the change in government expenditures output to grow by less than the change in government expenditures output to grow by the same amount as the change in government expenditures output to decline

Explanation / Answer

c. Output to grow by the same amount as the change in government expenditure.

If increase in G is same as Increase in T, Y will increase by same amount. Value of balance budget multiplier = 1

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.