What is the change in equilibrium expenditure?
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In the economy of Cambodia, the marginal propensity to consume is 0.9. Investment is $50 billion, government purchases of goods and services are $40 billion, and lump-sum taxes are $40 billion. Cambodia has no exports and no imports. a. The government cuts its purchases of goods and services to $30 billion. What is the change in equilibrium expenditure? b. What is the value of the government purchases multiplier? c. The government continues to purchase $40 billion worth of goods and services and cuts lumpsum taxes to $30 billion. What is the change in equilibrium expenditure? d. What is the value of tax multiplier? e. The government simultaneously cuts both its purchases of goods and services and taxes to $30 billion. What is the change in equilibrium expenditure? Why does equilibrium expenditure decrease?
