Question

GDP is $12 trillion this year in a closed economy. Consumption is $8 trillion and government spending is $2 trillion. Taxes are $0.5 trillion.

What is the government budget balance? (Please show how you got the answer)

Answer #1

The Nominal GDP can be defined the market value of all goods and services which are produced in the domestic territory of the country in the current financial years.

GDP=C+I+G+X-M

GDP is $12 trillion this year in a closed economy. Consumption is $8 trillion and government spending is $2 trillion. Taxes are $0.5 trillion.

Government budget balance= government spending- tax revenue

=$2 trillion- $0.5 trillion

=$1.50 trillion

Government budget deficit= $1.50 trillion.

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sector is:
C = $2 trillion + .6Yd, where Yd =
disposable income = Y – T, and
T = lump sum taxes = $2 trillion
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government spending G, is
$2.5 trillion.
Find Y* (equilibrium GDP). Find C and S. Find the size of the
multiplier.
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