Consider the Keynesian income-expenditure model with a government sector but no foreign sector. Assume that taxation is partly endogenous and dependent on the level of income. Suppose that the government increases expenditure by $200 million and reduces the exogenous component of taxation by $100 million. Taking the budget balance as being equal to total taxes less government expenditure, which of the following statements is correct?Group of answer choicesThe equilibrium level of income will increase and at the new equilibrium level of income the government’s budget balance will be worse off by $300 million compared with its initial level.If the level of private sector investment is unchanged, then the equilibrium level of income will also be unchanged.The effect on equilibrium income will be equivalent to $300 multiplied by the government expenditure multiplier.The equilibrium level of income will increase and at the new equilibrium level of income, if the government’s budget balance is worse off compared with its initial level, it will be worse off by something less than $300 million.

The balanced budget theorem would suggest that the effect on the equilibrium level of income of an equal increase in government expenditure and in the exogeneous component of taxation would beGroup of answer choicessmaller than the increase in government expenditure if the marginal tax rate is zerozero because the expenditure and tax multipliers are the same absolute sizegreater than zero because the tax increase only indirectly affects aggregate expenditureboth the first and third alternatives above are correct.

Consider the open-economy Keynesian income-expenditure model. Comparing the effect of an exogenous increase in government expenditure with that of an exogenous increase in exports, ceteris paribus, the increase in government expenditure willGroup of answer choicesbring about a smaller change in equilibrium income and a worse outcome for the trade balancebring about a larger change in equilibrium income but a better outcome for the trade balancebring about the same change in equilibrium income but a better outcome for the trade balancebring about the same change in equilibrium income but a worse outcome for the trade balance

In the open-economy Keynesian income-expenditure model which includes a government sector with endogenous taxation, which of the following statements could apply to the process of adjustment towards an equilibrium?Group of answer choicesAn increase in government expenditure, without any changes in investment or exports must generate a matching change in the sum of saving, taxation and imports.An increase in investment by itself will generate a rise in saving, imports and taxation via changes in the level of income.An increase in injections would cause a matching increase in withdrawals because of the resulting change in the level of income occurring through the multiplier.All of the other statements are correct.

Adding an external sector to the Keynesian income-expenditure model implies that for equilibrium, in terms of leakages and injectionsGroup of answer choicesplanned saving must equal planned investmentplanned saving must equal planned investment, government expenditure must equal total taxation and exports must equal imports it is not necessary for planned saving and planned investment to be equal but exports must be equal to imports it is not necessary for planned saving and planned investment to be equal but they are unequal then either the budget or the trade balance or both should not be equal to zero.

In the Keynesian income-expenditure model, equilibrium income is necessarily equal to a multiple ofGroup of answer choicesthe exogenous component of planned aggregate expenditure which is partly dependent on the autonomous component of taxation when government is includedthe autonomous component of consumption, regardless of whether the economy is closed or openthe sum of investment, government expenditure and net exportsnone of the other alternatives are correct.