Suppose a newly elected president cuts taxes by 20 percent: i. Assuming that the money supply is held constant, what are the new equilibrium interest rate and income

hello your question has some missing information below is the missing information

An economy is initially described by the following equations:

C = 80 + 0.8(Y – T)

I = 120 –5r

M/P = Y – 25r

G = 100

T = 100

M = 2,700

P = 3

answer :

equilibrium interest rate ( r ) = 5.6%

equilibrium level of income = 1040

Explanation:

a) New equilibrium interest rate

T = 100 - 20/100 ( 100 ) = 80

Y = C + I + G

   = 80 + 0.8( y - 80 ) + 120 - 5r + 100

   = 236 + 0.8y - 5r

y  = 1180 - 25r   ( 1 )

M/P = Y - 25r = 2700 / 3

y = 900 + 25r ( 2 )

equate;  equation ( 1 ) and equation ( 2 )

1180 - 25r = 900 + 25r

∴ r = 5.6%

b) Equilibrium level of Income

To determine Equilibrium level of income we will use equation2

Y = 900 + 25(5.6)  = 1040

answer; 33,000;

false! basically!

i hope i'm correct.