Give the relationship between the revenue deficit and the fiscal deficit.
Revenue deficit is the excess of revenue expenditure over revenue receipts whereas fiscal deficit is excess of total expenditure over total receipts (excluding borrowings). Fiscal deficit is a wider phenomenon than revenue receipts. If capital expenditure is greater than non-debt capital receipts then there is physical deficit even if there is no revenue deficit.
Suppose that for a particular economy, investment is equal to 200, government purchases are 150, net taxes (that is lump-sum taxes minus transfers) is 100 and consumption is given by C = 100 + 0.75Y (a) What is the level of equilibrium income? (b) Calculate the value of the government expenditure multiplier and the tax multiplier. (c) If government expenditure increases by 200, find the change in equilibrium income.
Consider an economy described by the following functions: C = 20 + 0.80Y, I = 30, G = 50, TR = 100 (a) Find the equilibrium level of income and the autonomous expenditure multiplier in the model. (b) If government expenditure increases by 30, what is the impact on equilibrium income? (c) If a lump-sum tax of 30 is added to pay for the increase in government purchases, how will equilibrium income change?