Finding change in budget surplus for simple Keynesian model

[RichaS]

It is given that economy is at equilibrium at Y0 = 1000. If Government undertakes a fiscal change so that tax rate t, increases by 0.05 and government spending increases by 50, will the budget surplus go up or down?


So dG=50 and dt=0.5

When Y=1000, dt.Y= 0.5 * 1000 = 500 (which is the increase in tax colection)

However, the Government expenditure increases only by 50, Therefore, the BS increases by 450 ( 500-50).

Is this correct?

[Abhitesh]

A correction made
Q6.pdf

[RichaS]

Thank you so much!