Consider an economy described by the following functions: C = 20 + 0.80Y, I = 30, G = 50, TR = 100 (a) Find the equilibrium level of income and the autonomous expenditure multiplier in the model. (b) If government expenditure increases by 30, what is the impact on equilibrium income? (c) If a lump-sum tax of 30 is added to pay for the increase in government purchases, how will equilibrium income change?
Equilibrium level of income = Rs. 900; Autonomous expenditure multiplier = 5
Equilibrium income increases by Rs. 150 (from Rs. 900 to Rs. 1050)
Equilibrium income increases by Rs. 30 (from Rs. 900 to Rs. 930)
Explanation
This question tests understanding of income determination with government sector and multiplier concepts. Part (a) requires substituting values into the equilibrium formula. Part (b) applies the government expenditure multiplier. Part (c) combines both government spending increase and tax multiplier effects.