Answer to Question #147866 in Macroeconomics for Harry

Question

C = 450 + 0.4Y
I = 350

G = 150
X = 70
Z = 35 + 0.1Y
T = 0.15Y
Yf = 1550



Q.2.6 Before the government decreased the tax rate, how much of government
spending was required to bring the economy to full employment?

Answer 1

The equilibrium income level is:

$Y = C + I + G + NX = 450 + 0.4Y + 350 + 150 + 70 - (35 + 0.1Y) = 1,407.14.$

The multiplier is:

$m = \frac {1} {1 - 0.4×(1 - 0.15) + 0.1} = 1.32.$

The government spending should be increased by: $(1,550 - 1,407.14)/1.32 = 108.23.$