Problem on tax and spend at possible level of GDP
Refer to columns 1 and 6 of the tabular data given below. Incorporate government in the table by supposing that it plans to tax and spend $20 billion at every possible level of GDP.
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Before G is added, open private sector equilibrium will be at $350. The addition of government expenditures of G to our analysis raises the aggregate expenditures (C + Ig +Xn + G) schedule and increases the equilibrium level of GDP as would an increase in C, Ig, or Xn. Note down that modification in government spending are subject to the multiplier effect. Government spending supplements private investment and export spending (Ig + X + G), rising the equilibrium GDP to $450.
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