Suppose the congress decides to reduce transfer payments, Business Economics

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Suppose the congress decides to reduce transfer payments

Suppose the Congress decides to reduce transfer payments but to increase government purchases of goods and services by an equal amount. That is it undertakes a change in fiscal policy such that ΔG = - ΔTR

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=0.8, t=0.25, and . Now let ΔG = 10 and ΔTR= -10.

B. Find the change in equilibrium income.

C. What is the change in the budget surplus ΔBS? Why has BS changed?

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Business Economics: Suppose the congress decides to reduce transfer payments

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Business Economics: Suppose the congress decides to reduce transfer payments

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