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Analyse with a graph the effects of an increase in government spending on the IS-LM curve
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- Suppose that exports increase by $300 billion, given an MPC of.75. Calculate the change in GDP. Give your answer in billions and leave off the dollar sign. Be sure to include a negative sign if appropriate.Assume the following model of the expenditure sector: S=C+I+G+Nx TR=100 C=420+(4/5)YD I=160 G=180 Nx=-40 YD=Y+TR-TA TA=(1/6)Y If the government would like to increase the equilibrium level of output (Y) to the full employment level Y*=2,700, by how much should government purchases (G) be changed?Using the income-expenditure model, what is the expected effect (increase, decrease, or no effect) of an increase in inventories on next period real GDP levels?