I have the following information about an economy:
C = 50 + 0.8*Yd Consumption Function
I = 100 Investment Function
G = 130 Government Spending
T = 0.1*Y Taxes
Yd = Y – T Disposable Income
1. Show that if Y = AE then I + G = S + T where S is saving.
2. What is the Government Budget position (G – T) when the economy is at the equilibrium level of GDP?
3. If government increases spending from 130 to 186 what happens to equilibrium GDP? to the government budget balance?
