2. The consumption function is C = 400 + .7(Y – T) and the function for net exports is

 

X_n = 20 - .15 Y + .2 Y_f + .3 E. I is exogenous, G is set by policy, and Y_f = foreign GDP and the exchange rate E do not change.                                                                    

 

2. What effect will an increase in G of $100 have on Y?
4. What effect will a decrease in T of $100 have on Y?
6. What would happen to your answers to (a) and (b) if the saving rate suddenly rose? Would your answers by higher, lower, or no change? Explain all your answers.

Answer rating: 100% (QA)

a An increase in government spending G of 100 will have a multiplier effect on the economy impacting aggregate output Y To determine the effect on Y w... View the full answer