Consider an economy described by the fol | Class 12 Macro Economics Chapter Government Budget and Economy, Government Budget and Economy NCERT Solutions

Question:

Consider an economy described by the following functions: C = 20 + 0.80Y, I = 30, G = 50, TR = 100 (a) Find the equilibrium level of income and the autonomous expenditure multiplier in the model. (b) If government expenditure increases by 30, what is the impact on equilibrium income? (c) If a lump-sum tax of 30 is added to pay for the increase in government purchases, how will equilibrium income change?

Answer:

(a) C = 20 + 0.80 Y

I = 30
c = 0.80
G = 50
T = 100

Equilibrium level of income

Y =
=
Expenditure multiplier

(b) Increase in government expenditure

∆G = 30

New equilibrium expenditure

Equilibrium level of income increase by 150 (1050 - 900)

(c) Tax multiplier

So,
=
=
= -120

New equilibrium level of income = Y+ ∆Y

= 900 + (-120)
= Rs 780


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Welcome to the NCERT Solutions for Class 12 Macro Economics - Chapter . This page offers a step-by-step solution to the specific question from Excercise 1 , Question 6: Consider an economy described by the following functions: C = 20 + 0.80Y, I = 30, G = 50, TR = 100 (....