Consider an economy with the following characteristics (in $ billion): C = 60 + 0.8Yd (where Yd
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Consider an economy with the following characteristics (in $ billion):
C = 60 + 0.8Yd (where Yd = disposable income)
t = 0.2
I = 40
G = 50
X = 20
M = 10 + 0.14Y
(a) What is the aggregate expenditure function (AE)?
(b) Find the equilibrium GDP using algebra.
(c) Show the equilibrium GDP via an appropriate graph.
(d) Using the formula for the autonomous expenditure multiplier, compute the open economy multiplier for the above economy.
(e) Suppose that the government increases its purchases of goods and services by $20 billion. Calculate the new equilibrium GDP. Show this in your graph drawn in (c).
Related Book For
Business Intelligence and Analytics Systems for Decision Support
ISBN: 978-0133050905
10th Edition
Authors: Ramesh Sharda, Dursun Delen, Efraim Turban
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