Consider the following macroeconomic system where C, I, G, X, M represent, respectively, consumption expenditures, investment expenditures, government expenditures, exports and imports. Yd and Y denote the disposable income and national income. t is the net tax rate.
C= 300+0.75Yd, Yd=(1-t)Y, t=0.2.
I = 250,
G=250,
X =200,
M= 0.1Y.
Units need not be specified. Ignore depreciation and net indirect taxes.
a. Find the equilibrium level of output/income (Y).
b. Find the equilibrium level of consumption.
c. Find the equilibrium level of imports.
d. Find the budget surplus (or deficit) at the equilibrium.
e. Find the value of the government spending multiplier.
f. If the government spending is increased by 100, by how much does the equilibrium/national income increase?
g. In order to increase the national income by 500, by how much should the government spending be increased?
h. Suppose that the marginal propensity to consume increases from 0.75 to 0.80. In order for the equilibrium income to remain the same, by how much should the net tax rate be increased