Use the consumption, planned investment, government expenditures, net exports and tax functions presented below to answer the
Question:
Use the consumption, planned investment, government expenditures, net exports and tax functions presented below to answer the following questions:
C = 425 + .75(Y - T)
IP = 400
G = 300
NX = -50
T = 100
a. Calculate equilibrium income (Y)
b. Suppose planned investment expenditures (IP) fall by $50. Recalculate equilibrium income to show the effect of this decline in investment.
c. Calculate the expenditure multiplier and use it to find the change in equilibrium income brought on by the change in planned investment from part (b).
d. [On back on this page] Plot the planned aggregate expenditure functions before and after the decrease in planned investment expenditures, and use a 45o line (Y=PAE) to show the same change in equilibrium Y that you found between parts (a) and (b).
Expert Answer:
a Equilibrium income Y is where planned expenditure equals actual income Planne... View the full answer
