Homework Answers
(1) At equilibrium, Y = C + I + G
=> Y = 150 + 0.8DI + 50 + 200
=> Y = 400 + 0.8 (Y - T + Tr)
=> Y = 400 + 0.8Y
=> Y - 0.8Y = 400
=> 0.2Y = 400
=> Y = (400 / 0.2)
=> Y = 2000
Equilibrium Y is $2000
Answer: Option (D)
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(2) Budget defict means government tax revenue is lower than government spending
National debt =Sum of budget deficit - Sum of budget surplus.
A decrease in tax will increase the budget deficit as well as national debt.
Answer: Option (B)
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(3) No, federal budget should not be balanced each fiscal year.
Because it can be in a deficit (i.e., decrease taxes and incerease government spending on social welfare) during recessions and offset by surpluses (i.e., increase taxes and decrease government spending on welfare) when the economy is doing well.
Answer: option (D)
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