Consider the imaginary small country of Torngat. Assume that Torngat is closed to trade, so that its net exports are equal to zero. Suppose that the economy is described by the following consumption function, where C is consumption, Y is income (real GDP), Ip is planned investment, Gis government purchases, and T is taxes: C= $40 billion +0.5x (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 S billion. Suppose that government purchases are increased by $100 billion. The new equilibrium level of income will be equal to S Based on the effect of the change in government purchases on equilibrium income, you can tell that this economy's multiplier is equal to billion.

Consider the imaginary small country of Torngat. Assume that Torngat is closed to trade, so that its net exports are equal to zero. Suppose that the economy is described by the following consumption function, where C is consumption, Y is income (real GDP), Ip is planned investment, Gis government purchases, and T is taxes: C= $40 billion +0.5x (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 S billion. Suppose that government purchases are increased by $100 billion. The new equilibrium level of income will be equal to S Based on the effect of the change in government purchases on equilibrium income, you can tell that this economy's multiplier is equal to billion.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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