ECON 438 Study Guide - Final Guide: Disposable And Discretionary Income, Government Spending, Fiscal Multiplier
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Assume that t1 is between 0 and 1: solve for equilibrium output. C = 160 + 0. 6yd i = 150. Solve for the following variables: equilibrium gdp (y) Gdp = c + i + g + x im. C = 160 + 0. 6yd *yd = y-t. So, gdp (y) = 160 + 0. 6(y-100) + 150 + 150 => y=0. 6y + 400 => 400 = 0. 6y => 0. 4y : therefore, y=1000, disposable income (yd) Use the economy described in problem 2: solve for equilibrium output. Equilibrium output (y) = c+i+g = 160+0. 6yd+150+150 = 460 + 0. 6yd = 460+0. 6(y-100) Total demand = c+i+g = 160+0. 6yd+150+150 = [{160+0. 6(y-100)}+150+150] = 160 + As a result, the equilibrium output and total demand are equal: assume that g is now equal to 110. New equilibrium output = old equilibrium output + change in equilibrium output that owe to change in government spending. = 1000 + [(110-150) x 2. 5] = 1000 100 = 900.
