2. Consider an economy where aggregate demand AD consists of aggregate con-1000 and government=sumption C 10+ 0.8Y, aggregate investment Ispending G = 800.(a)=(c)(d)What is aggregate demand if aggregate income/output is 10,000?Why is the economy not in equilibrium in that state?Calculate the goods market equilibrium for this economy.(b)Assume that the government increases spending by 20%.Calculate the new goods market equilibrium.What is the multiplier for the change in government spending?Assume now that the country starts trading globally and has Exports and Imports.Assume that imports are given by Im = n Y, with n being the marginal propensityto import.(e)Explain why - with exports and imports - a increase in governmentspending (e.g., 20%) results in a smaller change in aggregate demand/income inequilibrium than without exports and imports. (You do not have to calculatethe new equilibrium.)

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2. Consider an economy where aggregate demand AD consists of aggregate con- 1000 and government = sumption C = 10+ 0.8Y, aggregate investment I spending G = = 800. (a) What is aggregate demand if aggregate income/output is 10,000? Why is the economy not in equilibrium in that state? Calculate the goods market equilibrium for this economy. (b) Assume that the government increases spending by 20%. (c) Calculate the new goods market equilibrium. (d) What is the multiplier for the change in government spending? Assume now that the country starts trading globally and has Exports and Imports. Assume that imports are given by Im = n nY, with n being the marginal propensity to import. (e) Explain why with exports and imports - a increase in government spending (e.g., 20%) results in a smaller change in aggregate demand/income in equilibrium than without exports and imports. (You do not have to calculate the new equilibrium.)

2. Consider an economy where aggregate demand AD consists of aggregate con- 1000 and government = sumption C = 10+ 0.8Y, aggregate investment I spending G = = 800. (a) What is aggregate demand if aggregate income/output is 10,000? Why is the economy not in equilibrium in that state? Calculate the goods market equilibrium for this economy. (b) Assume that the government increases spending by 20%. (c) Calculate the new goods market equilibrium. (d) What is the multiplier for the change in government spending? Assume now that the country starts trading globally and has Exports and Imports. Assume that imports are given by Im = n nY, with n being the marginal propensity to import. (e) Explain why with exports and imports - a increase in government spending (e.g., 20%) results in a smaller change in aggregate demand/income in equilibrium than without exports and imports. (You do not have to calculate the new equilibrium.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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