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Assume that an economy does not have any import or export as well as any transfer...

Assume that an economy does not have any import or export as well as any transfer of money from Government to household in a given period. The economy has an initial investment of $1000 million and Government expenditures of $ 1000 million. The economy’s marginal propensity to consume and the flat tax rate for the given period are 0.60 and 20% respectively.

i. With the help of inflow and outflow identity, please calculate the aggregate demand of the economy. Y = C+ I+G+NX, Tax Rates τ = T/Y or T = τY, c = mpc, and mps = 1-c , Government Deficit = (G-T)

i. Please verify whether the government budget is balanced.

ii. How much is the surplus or deficit for the period if there is any?

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