Question

Question 13 (5 points) Suppose a closed economy has an aggregate consumption function given by C-200 +0.8Y, and generates $2.400 output and income in equilibrium. Suppose also that the government spends $350 and imposes a lump-sum tax of $300. How much will the private sector be saving total in equilibrium (S.)? Is the government running a deficit or surplus? By how much? (Circle 'surplus' or 'deficit' and enter the size (in dollars)) Is the private sector in deficit or surplus? By how much? (Circle 'surplus' or 'deficit' and enter the size (in dollars))

Answer 1

C= 200+ 0.87d $2400 6= $350 To $300. (a CF 200+ 0.8 (2400-300) = 200 to 8x 2100 - 1880 Private sanings = y-c=2400 -18%0 = & 520. Government & is less is running than b) Conernment spending > Tax Rate, thus deficit as Government Revenue exceed Government spending Deficit - 2350 - 8300 - $50. e Private sector is in swephus because sector are posituie. sanings of private