Question

Suppose the economy is operating at equilibrium, with Y= 1000. If the government undertakes

when I-50?

a fiscal change so that the tax rate, t, increases by 0.05 and the government spending increases by

50, will the budget surplus go up or down? Why?

Answer 1

If the economy operates in a state of equilibrium with Y = 1000, then with an increase in the tax rate by 0.05, revenues will increase by 50, while government spending will increase by 50, which will lead to the absence of an increase or decrease in the budget surplus.