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In: Economics

Consider a hypothetical economy with autonomous consumption spending equal to 100 billion dollars, a marginal propensity to consume of 0.8

 

Consider a hypothetical economy with autonomous consumption spending equal to 100 billion dollars, a marginal propensity to consume of 0.8, private investment spending of 160 billion dollars, government spending of 140 billion dollars, a balanced budget, and balanced trade (i.e. exports and imports are equal). Write a short essay comparing the effects (1) on the government budget and (2) on the equilibrium level of income in the economy of (i) a 5 billion dollar increase in government spending and of (ii) a 5 billion dollar decrease in net taxes.

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Rahul Sunny answered 1 year ago
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