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Question

Suppose that a hypothetical economy is categorized by the following model:

C = 100 + 0.9DI

I = 300

G = 800

T = (1/6)Y,

where C represents consumption, DI represents disposable income, I represents investment, G represents government purchases, and T represents taxes. This is a closed economy.

At the equilibrium level of output, ______.

A. The budget is balanced

B. There is a budget deficit

C. There is a budget surplus

Answer 1

C=100+0.9DI

T=Y/6

DI=Y-T=Y-Y/6=5Y/6

C=100+0.9*5Y/6

C=100+0.75Y

Y=C+I+G

I=300

G=800

Y=100+0.75Y+300+800

0.25Y=1200

Y=4800

T=4800/6=800

T=G

800=800

Conclusion: Budget is balanced.

"A" is right answer.

Answer 2

The answers is Option "A - The budget is balanced"

because from these values we find equilibrium level of output is 4794 and when we multiply with this Taxes which shows Govt Income then the answer is 800 approx which is equal to Govt Expenditure. So the budget is balanced.

I hope it will help you.