MACROECONOMICS Foundation Questions

C= 100 + c Yd
Yd = Y -tY + TR
c = 0.8
t=0.25
I= 200
G = 300
TR = 100
NX = 0
BS = tY - G - TR
Y* = 2000
I = I* - bi
I* = 300
b = 20
M/P = 800
L = 620 + kY - hi
K = 0.2
h = 20

Qn 1) Calculate the expenditure multiplier and equilibrium income

Qn 2) Calculate the budget surplus (BS), Identify structural and cyclical components of the BS with regards to potential output level [Y* = 2000]

Qn 3) How much government have to change spending (G) to shift output to potential output Y* = 2000

Qn 4) An alternate changing government spending to reach equilibrium is to change taxes (t). Calculate the tax rate (t) which will shift the potential output Y* = 2000

Qn 5) Consider the impact on the budget surplus (BS) of the changes suggested in (3) and (4). If the government wished to implement the policy change which led to the smallest budget surplus / deficit which policy would advocate; changing taxes or government spending.