Q1. Assume the government decides to fight obesity in America by imposing an excise tax on the saturated fat content of food. The effect of this tax would be to
Q2. Consider a simple Keynesian income-spending model of an economy described by the following equations
C = 210 + 0.75Yd
I= 300
G= 425
TR= 120
T= 100
M = 0.15Y
X= 220
(a) Compute the equilibrium level of income. Sketch this equilibrium position using a two-dimensional graph.
(b) Assume the government reduces public expenditure by 50. Estimate the change in the equilibrium level of income? Illustrate what is the new equilibrium level of income?