Question: 14. Consider the following system: = ((1 ) ) + + + Where AE is planned aggregate expenditure, c is average consumption rate, t is

14. Consider the following system: = ((1 ) ) + + + Where AE is planned aggregate expenditure, c is average consumption rate, t is our net tax rate, m is our propensity to import, Y is GDP, Io/Go/Xo are planned Business/Government/Export Expenditure. If our potential GDP is 1500 and our AE variables are: Consumption: 0.9 Net Tax Rate: 0.1 Import Rate: 0.11 Business Investment: 150 Government Expenditure: 100 Exports: 50 What is our current level of equilibrium GDP? What type of gap is this, and what are the market effects to both price level and employment? What is our current government budget balance? What level of additional government expenditure will reach potential GDP? Graph the current AE line and your new proposed AE line with equilibrium and potential GDP identified. What is the government's budget balance after your expenditure?

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