Equilibrium Y = 1/(1 - c_1 - c_1t_1) (c_0 - c_1 Times t_0 + I + G). Given the de
ID: 1215301 • Letter: E
Question
Equilibrium Y = 1/(1 - c_1 - c_1t_1) (c_0 - c_1 Times t_0 + I + G). Given the decrease in c_0, the level of equilibrium output will decrease. Given the decrease in c_0, the amount of taxes will increase. Now suppose the government reduces G to keep a balanced budget. Given the change in G, the level of equilibrium output will decrease even more When there is a required cut in spending to balance the budget, this reinforces the decrease in output because the cut in spending lowers the level of output even further. this reinforces the decreases in output because the cut in spending allows the government to raise taxes and have more money to spend. this counteracts the decrease in output because the cut in spending raises the level of output. this counteracts the decrease in output because the cut in spending allows the government to reduce taxes even further.Explanation / Answer
1. decrease
2.remain constant.
3.decrease even more
4.option number A is correct.
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