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Suppose the economy is operating at equilibrium, withY0 1,000. If the government undertakes a fiscal change whereby the tax rate,t , increases by .05 and
Suppose the economy is operating at equilibrium, withY0 1,000. If the government undertakes a fiscal change whereby the tax rate,t , increases by .05 and government spending increases by 50, will the budget surplus go up or down? Why?
Can you try to explain this intuitively without the example? thanks
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