Question

In: Economics

Suppose the Canadian economy can be described as follows: C = 300 + 0.8 Yd (Yd...

Suppose the Canadian economy can be described as follows:

C = 300 + 0.8 Yd (Yd is disposable income)

I = 165 (investment spending)

G = 410 (government purchases)

T = 0.25Y (proportional taxes)

X=45(exports are constant)

M =0.1Y(imports depend positively on our own Y)

  1. Calculate the equilibrium Y.
  2. Find the government budget balance BB=tY-G, given your Y in (i). Is the government running a surplus or deficit or neither?

iii)Now, let’s look at the consumption function C = 300 + 0.8 Yd (Yd is disposable income), where 300 was defined as autonomous part of the consumption expenditure. Let’s say the autonomous consumption expenditure drops from 300 to 250. Find the new Y.

  1. Find the government budget balance, given your Y in (iii). Is the government running a surplus or deficit or neither?

Solutions

Expert Solution

Rahul Sunny answered 2 years ago
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