The result of the austerity policy is an almost balanced budget, unfortunately accompanied by a big decline in the country's GDP and rise in unemployment. Under pressure from opponents of austerity, the government decides to follow a more balanced approach by the following combination of monetary and fiscal policies: Cut the interest rate to 4 % and set the marginal tax rate at 8 % and the government expenditure at 90.
(a) Find the new equilibrium national income, consumption, investment, and tax.
(b) Determine whether the budget is balance or not.