Question

Consider the following economy with Ta = 510 and YA = 9,950. a) If t is constant at 19.5%, derive the equation of the BDA as a function of G. b) Find the value of G for which the country will be running a budget balance. Budget Balance BD = 0; c) Find the values of the deficits for the following G spending levels: 4000, 3500, 3000, 2500, 2000, 1500 and 1000. d) Graph your findings in c using any graphing tool (preferably excel). Please answer c need graph to show the work,

Answer 1

Question :

Answer :

Part A:

B.D = G - T

If G - T > 0, then budget surplus

If G - T < 0, then budget deficit

Part B :

If t = 19.5% of Y = 1940.25

then Budget is balanced at G - T = 0

G = T

G = 1940.25

OR

if t = 510

then Budget is balanced at G - T = 0

G = T

G = 510

Part C : There will be 2 cases

i - At t = 19.5% of Y

ii - At t = 510

Case i -

Case ii -