Business, 07.07.2020 16:01 rakanmadi87

Consider a small economy that is closed to trade, so its net exports are equal to zero. Suppose that the economy has the following consumption function, where C is consumption, Y is real GDP, I is investment, G is government purchases, and T stands for net taxes: C= 25 + 0.75∗ (Y−T).

Suppose G = $130 billion, I = $60 billion, and T = $20 billion.

Given the consumption function and the fact that, in a closed economy, total expenditure can be calculated as Y=C+I+GY=C+I+G, the equilibrium output level is billion.

Suppose the government purchases are reduced by $100 billion. The new equilibrium level of output will be equal to $ billion.

Based on the effect of the change in government purchases on equilibrium output, you can tell that this economy's spending multiplier is equal to

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Consider a small economy that is closed to trade, so its net exports are equal to zero. Suppose that...

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