Consider a small economy that is closed to trade, so that its net exports are zero. Suppose that the economy has the following consumption function, where C is consumption, Y is income (real GDP), IP is planned investment, G is government purchases, and T is taxes: C = $40 billion+0.5×(Y – T) Suppose G=$115 billion, IP=$50 billion, and T=$10 billion. Given the consumption function and the fact that, in a closed economy, planned expenditure can be calculated as Y=C+IP+G , the equilibrium income level is $ billion. Suppose that government purchases are increased by $100 billion. The new equilibrium level of income will be equal to $ billion. Based on the effect of the change in government purchases on equilibrium income, you can tell that this economy's multiplier is equal to_________?
Consider a small economy that is closed to trade, so that its net exports are zero. Suppose that the economy has the following consumption function, where C is consumption, Y is income (real
C = $40 billion+0.5×(Y – T)
Suppose G=$115 billion, IP=$50 billion, and T=$10 billion.
Given the consumption function and the fact that, in a closed economy, planned expenditure can be calculated as Y=C+IP+G , the equilibrium income level is
$ billion.
Suppose that government purchases are increased by $100 billion. The new equilibrium level of income will be equal to
$ billion.
Based on the effect of the change in government purchases on equilibrium income, you can tell that this economy's multiplier is equal to_________?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 3 images
