Consider a small country that is dosed to trade, so its net exports are equal to
ID: 1221721 • Letter: C
Question
Consider a small country that is dosed to trade, so its net exports are equal to zero. Suppose the following equations describe the economy of this country in billions of dollars, where C is consumption, Y is real GDP, I is investment, G is government purchases, and NT is net taxes. C = 40 + 0.5 (Y - NT) I = 50 G = 165 NT = 10 Solve for the level of aggregate output demanded by entering the appropriate numbers into the following equations. This economy's aggregate output demanded is Suppose the government decides to increase its purchases by $150 billion. After it does so, this economy's aggregate output demanded will equal which is than it was before. Based on the effect of the change in government purchases on equilibrium output, you can tell that this economy's simple spending multiplier is equal toExplanation / Answer
Y = C + I + G
Y = 40 + 0.5(Y - NT) + 50 + 165
Y = 255 + 0.5(Y - 10)
Y = 255 + 0.5Y - 5
Y = 250 + 0.5Y
0.5Y = 250
Y = 500
Answer to blank 1: 500
Answer to blank 2: 800
Explanation:
Y = C + I + G
Y = 40 + 0.5(Y - NT) + 50 + 315
Y = 405 + 0.5(Y - 10)
Y = 405 + 0.5Y - 5
Y = 400 + 0.5Y
0.5Y = 400
Y = 800
Answer to blank 1: more
Answer to blank 1: 2
Explanation:
multiplier = 1/ 1 - mpc = 1 / 1 - 0.5 = 2