Consider an economy in which autonomous consumption is 800, the marginal propensity to consume is 0.8, investment is 400, government spending is 500, taxation is 400, and net exports are 100.

Part A

What is the equilibrium GDP in this economy? Show your work.

Part B

What is the savings at this level of GDP? Show your work.

Part C

What are the spending and tax multipliers? Show your work.

Part D

If government spending increases by 200, what is the new equilibrium GDP, and what is the increase over the original equilibrium GDP? Show your work.

Answer rating: 100% (QA)

Part A To find the equilibrium GDP we need to set up a equation that represents the flow of funds in ... View the full answer