Income (Y) Net Tax (T) Disposable Income (Y D ) Consumption (C) Saving (S) Inves
ID: 1207791 • Letter: I
Question
Income (Y)
Net Tax (T)
Disposable Income (YD)
Consumption (C)
Saving (S)
Investment (I)
Gov. Spending (G)
TE
10,000
1,000
1,300
2,000
1,500
12,000
1,000
1,700
2,000
1,500
13,000
1,000
2,000
1,500
15,000
1,000
2,000
1,500
16,000
1,000
2,000
1,500
18,000
1,000
2,000
1,500
20,000
1,000
2,000
1,500
c) What is the equilibrium output level?
d) If the current output level is 15,000, what would likely happen to the output level next year? Why?
e) By how much will the equilibrium output level increase (decrease) if the planned investment falls by 500?
f) By how much will the equilibrium output level increase (decrease)if the tax (T) decreases by 400?
g) By how much will the equilibrium output level increase (decrease) if the government spending (G) decrease by 800?
h) By how much will the equilibrium output level increase (decrease) if the government spending (G) decrease by 300 and at the same time, the government cuts taxes by the same amount of 300?
Income (Y)
Net Tax (T)
Disposable Income (YD)
Consumption (C)
Saving (S)
Investment (I)
Gov. Spending (G)
TE
10,000
1,000
1,300
2,000
1,500
12,000
1,000
1,700
2,000
1,500
13,000
1,000
2,000
1,500
15,000
1,000
2,000
1,500
16,000
1,000
2,000
1,500
18,000
1,000
2,000
1,500
20,000
1,000
2,000
1,500
Explanation / Answer
Income (Y)
Net Tax (T)
Disposable Income (YD)
Consumption
Saving
Investment
Gov. Spending
TE
(a)
(b)
(c )
(d)
(e)
(f)
(g)
(a)-(b)
(c )-(e)
(c )+(g)
10,000
1,000
9,000
7700
1,300
2,000
1,500
10,500
12,000
1,000
11,000
9300
1,700
2,000
1,500
12,500
13,000
1,000
12,000
12000
0
2,000
1,500
13,500
15,000
1,000
14,000
14000
0
2,000
1,500
15,500
16,000
1,000
15,000
15000
0
2,000
1,500
16,500
18,000
1,000
17,000
17000
0
2,000
1,500
18,500
20,000
1,000
19,000
19000
0
2,000
1,500
20,500
In equilibrium aggregate output (income) equals planned aggregate expenditure (AE). AE equals planned aggregate expenditure (AE).
AE equals C + I + G,
C=consumption
I = investment
G=Govt. spending
Y= income
So, equilibrium level of output at different level of income would be
Income (Y)
Net Tax (T)
Disposable Income (YD)
Consumption
Saving
Investment
Gov. Spending
TE
(a)
(b)
(c )
(d)
(e)
(f)
(g)
(a)-(b)
(c )-(e)
(c )+(g)
10,000
1,000
9,000
7700
1,300
2,000
1,500
10,500
12,000
1,000
11,000
9300
1,700
2,000
1,500
12,500
13,000
1,000
12,000
12000
0
2,000
1,500
13,500
15,000
1,000
14,000
14000
0
2,000
1,500
15,500
16,000
1,000
15,000
15000
0
2,000
1,500
16,500
18,000
1,000
17,000
17000
0
2,000
1,500
18,500
20,000
1,000
19,000
19000
0
2,000
1,500
20,500