Assume the following economy: Autonomous Consumption = 10,000; Marginal Propensity to Consume = 0.8; Business Investment = 30,000

A. Find the equilibrium size of income Y and the size of the Multiplier of Business Investment (hint: to find the Multiplier increase investment by 10,000) (5%)

B. Assume now that a government sector is introduced, while business investment is still 30,000. Government spending injects 50,000 into the economy. However, in order to finance its expenditure the government levies an income tax at a rate of 25%.

Find the new equilibrium size of income and calculate the size of the Multiplier of Business Investment (hint: to find the Multiplier increase investment by 10,000)

Identify whether the government balance is balanced or not when I=30,000 and G=50,000