Imagine an economy defined by the following:
C = 140 + 0.9 (Yd)
Where, 140 is autonomous consumption, 0.9 is the marginal propensity to consume, and Yd is disposable (i.e. after tax income).
Yd = Y- T, where Y is national income (or GDP) and T = Tax Revenues = 0.3Y; note that 0.3 is the average income tax rate.
I = Investment = 400
G = Government spending = 800
X = Exports = 600
Determine the aggregate expenditure function?
Suppose that, investment rises to 500. Calculate the equilibrium output?
Calculate the government expenditure multiplier?
b) Draw a graph which represents the above equilibrium level income and expenditures.
