Suppose Congress decides to reduce transfer payments (such as welfare) but to increase government purchases of goods and services by an equal amount. That is, it undertakes a change in

Suppose Congress decides to reduce transfer payments (such as welfare) but to increase government purchases of goods and services by an equal amount. That is, it undertakes a change in fiscal policy such that
a. Would you expect equilibrium income to rise or fall as a result of this change Why Check your answer with the following example: Suppose that, initially, c =.8, t =.25, and Y 0 = 600. Now let
b. Find the change in equilibrium income,
c. What is the change in the budget surplus,
Why has BS changed

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