Question

Refer to the information in the table that follows to answer the question that follows: (Difficult Question)

The Agrinimia Macroeconomy

Output (Income) Y	Net Taxes T	Consumption Spending (C = 100 + 0.9Yd)	Savings S	Planned Investment I	Government Spending G
2400	100	2170	130	130	200
2800	100	2530	170	130	200
3000	100	2710	190	130	200
3200	100	2890	210	130	200
3400	100	3070	230	130	200
3600	100	3250	250	130	200
3800	100	3430	270	130	200

If taxes are reduced from 100 to 25, then calculate the CHANGE in the equilibrium level of income?

Select one:

a. -1800

b. 75

c. 450

d. 675

Answer 1

Output	Net Tax	Consumption ©	Savings	I	G	Y = C + I + G
2,400	100	2170	130	130	200	2500
2,800	100	2530	170	130	200	2860
3,000	100	2710	190	130	200	3040
3,200	100	2890	210	130	200	3220
3,400	100	3070	230	130	200	3400
3,600	100	3250	250	130	200	3580
3,800	100	3430	270	130	200	3760

Equilibrium in the above case at output level of 3,400

If tax change to 25,

Output	Net Tax	Consumption ©	Savings	I	G	Y = C + I + G
2,400	25	2237.5	130	130	200	2567.5
2,800	25	2597.5	170	130	200	2927.5
3,000	25	2777.5	190	130	200	3107.5
3,200	25	2957.5	210	130	200	3287.5
3,400	25	3137.5	230	130	200	3467.5
3,600	25	3317.5	250	130	200	3647.5
3,800	25	3497.5	270	130	200	3827.5

We are not sure aboyt the change in output due to tax. Let us calculate it from equation:

C = 100 + 0.9 * (Y - T)

I = 130

G = 200

Y = 100 + 0.9 * (Y - 25) + 130 + 200

Y = 100 + 0.9Y - 22.5 + 130 + 200

0.1Y = 407.5

Y = 4,075

Thus, equilibrium rise by 675 from 3,400 to 4,075.

Option D is correct.