Refer to the information provided in Table 9.4 below to answer the questions that follow.
Table 9.4
All Figures in Billions of Dollars

-Refer to Table 9.4.If taxes are reduced from $100 billion to $50 billion and government spending is reduced from $200 billion to $150 billion,the new equilibrium level of income

Question

Refer to the information provided in Table 9.4 below to answer the questions that follow.
Table 9.4
All Figures in Billions of Dollars
 
-Refer to Table 9.4.If taxes are reduced from $100 billion to $50 billion and government spending is reduced from $200 billion to $150 billion,the new equilibrium level of income

Quizplus · Accepted Answer

According to the table, the equilibrium level of income is $3,400 billion when taxes are $100 billion and government spending is $200 billion. If taxes are reduced to $50 billion and government spending is reduced to $150 billion, the new equilibrium level of income can be determined by calculating the new equilibrium level of autonomous expenditure, which is $50 + $1,500 = $1,550 billion. The multiplier is 2, so the new equilibrium level of income is $1,550 x 2 = $3,100 billion. However, there is also an increase in autonomous expenditure due to the tax cut, which is equal to the tax cut times the multiplier, or ($100 - $50) x 2 = $100 billion. Therefore, the new equilibrium level of income is $3,100 + $100 = $3,200 billion. But since $3,200 billion is not one of the answer choices, the closest answer is B, which is $3,350 billion.

Refer to the Information Provided in Table 9