Refer to the information provided in Table 9.6 below to answer the questions that follow.
Table 9.6
All Figures in Billions of Dollars
-Refer to Table 9.6. 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 9.6 below to answer the questions that follow.
Table 9.6
All Figures in Billions of Dollars 
-Refer to Table 9.6. 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

Using the income-expenditure model, the current equilibrium level of income can be calculated as follows:
Y = C + I + G + NX
Y = $2,500 + $1,000 + $200 + $100
Y = $3,800 billion
If taxes are reduced by $50 billion (T = $50 billion) and government spending is reduced by $50 billion (G = $150 billion), the new equilibrium level of income can be calculated as follows:
Y = C + I + G + NX
Y = [$2,500 + (0.8($3,800 - $100 - $50))] + $1,000 + $150 + $100
Y = $3,350 billion
Therefore, the new equilibrium level of income is $3,350 billion.

Refer to the Information Provided in Table 9