The algebra of tax multipliers?

Posted on 2014-11-17 06:39:00 in Math by ANGELA

Consider a small country that is closed to trade so it's net exports are equal to zero suppose the following equations describe the economy of this country in billions of dollars where c is consumption di is disposable income and I is investment and g is government ,

c= 40+.9DI
G=80
I=20

Initially this economy had a lump sum tax. Suppose net taxes were 100 billion so that disposable income was equal to Y-100 where y is real gdp , in this case output demanded would be
A.) 800
b.) 250
C)500
D.) 400

Supose the government decided to increase spending by 10 billion without raising taxes, because the spending multiplier is ___, this will increase the economy's aggregate output by ____.

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