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Posted by on Monday, April 21, 2008 at 12:57pm.

Could you please help me with these couple of problems?

Assume that C=a+(.75)(YD), where YD= Y-T

1. If the autonomous tax increases by 1000, the leakage schedule will shift up by how much?

2. A full employment income, planned aggregate expenditure exceeds income by 1000, what is the change required in G necessary to have equilibrium occur at full employment income?

3. A full employment income, planned aggregate expenditure exceeds income by 1000, what is the change required in T necessary to have equilibrium occur at full employment income?

4. At full employment income, planned aggregate expenditure exceeds income by 1000. The difference between the current equilibrium income and full employment income equals?

  • macroeconomics - , Monday, April 21, 2008 at 3:48pm

    I'm not sure what you mean by "leakage schedule" That said, your marginal propensity to consume is .75, meaning your government spending multiplier is 1/(1-.mpc) = 1/.25 = 4. The taxation multiplier is one less than the government spending multiplier = 3.
    So, if taxes go up by $1000, income drops by 3*1000 = 3000.

    2) use the government multiplier

    3) Use the taxation multiplier.

    4) ?? Is the question: "if the A is 1000 more than B, what is the difference between A and B"?

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