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government expenses

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Please help answer the following problem.

Assume the following open economy

C = 300 + 0.80(Y - 125)

I = 150

G = 250

X =115

M = 125+.05Y

a. Determine (solve for) the equilibrium level of income or GDP (Y).

b. Determine the impact on income of a 50 increase in government spending from 250 to 300.

c. Using the original data, compute the impact of a 50 decrease in taxes from 125 to 75.

d. If the government seeks to raise income to 3,000, how much should it raise government spending?

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Solution Preview

Problem: Assume the following open economy

C = 300 + 0.80(Y - 125)

I = 150

G = 250

X =115

M = 125+.05Y

a. Determine (solve for) the equilibrium level of income or GDP (Y).

b. Determine the impact on income of a 50 increase in government spending from 250 to 300.

c. Using the original data, compute the impact of a 50 decrease in taxes from 125 to 75.

d. If the government seeks to raise income to 3,000, how much should it raise government spending?

Solution:
The ...

Solution Summary

This job assesses government expenses. Step by step calculations are provided.

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