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Consider an economy with the following characteristics: · Consumption function is C = 200 + 0.8Y;...

Consider an economy with the following characteristics:

· Consumption function is C = 200 + 0.8Y;

· Planned investment: I = 50;

· Government expenditure: G = 50;

· Exports of the country: X = 20

· The import function: M = 10 + 0.1Y.

· Assume there are no transfer payments and no autonomous taxes.

All variables are in billions of dollars. C is consumption expenditure; Y is real GDP; G is government purchases of goods and services; I is planned investment expenditure; X is exports, and M is imports.

a. Write the aggregate expenditure function and calculate the value of the equilibrium level of income in the economy.

b. What is the value of consumption expenditure in the economy?

c. Define the concept of the multiplier. Calculate the size of the effect on the economy if the covid 19 shutdown reduces Consumption to C = 150 +0.8Y and planned Investment falls by $20 billion.

Please provide detail answers to all parts

Solutions

Expert Solution

Rahul Sunny answered 1 year ago
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