This is “Review and Practice”, section 2.3 (from appendix 2) from the book Macroeconomics Principles (v. 2.0).
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Suppose an economy is characterized by the following equations. All figures are in billions of dollars.
C = 400 + ⅔(Y_{d})
T = 300 + ¼(Y)
G = 400
I = 200
X_{n} = 100
Consider the following economy. All figures are in billions of dollars.
C = 180 + 0.8(Y_{d})
T = 100 + 0.25Y
I = 300
G = 400
X_{n} = 200
Suppose an economy has a consumption function C = $100 + ⅔ Y_{d}. Autonomous taxes, T_{a}, equal 0, the income tax rate is 10%, and Y_{d} = 0.9Y. Government purchases, investment, and net exports each equal $100. Solve the following problems.