Suppose a closed economy has an aggregate consumption function given by C = 200 + 0.50Yd and generates $2400 output and income in equilibrium

Suppose a closed economy has an aggregate consumption function given by C = 200 + 0.50Yd and generates $2400 output and income in equilibrium. Suppose also that the government collects a lump-sum tax of 100.

How much will the private sector be saving total in equilibrium?

Suppose a closed economy generates $2500 output and income in equilibrium. Suppose also that the government spends 350 and imposes a lump-sum tax of 100.

By how much is the government in deficit?

Solutions

Expert Solution

2) Private saving = income - taxes - consumption

= 2400 - 100 - 200 - 0.50*(2400 - 100)

= 950

Hence saving of private sector is 950

3) Budget deficit = government spending - taxes

= 350 - 100

= 250

Hence budget deficit is 250

Rahul Sunny answered 1 year ago

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