Let the following equations characterize an economy: C = 400 + 0.8*(Y-T) G = 300 T...

Let the following equations characterize an economy:

C = 400 + 0.8*(Y-T)

G = 300

T = 250

I = 200

a. Draw a graph of planned expenditures for this economy and calculate the equilibrium level of output.

b. Suppose output this year was 3000. Is the economy in equilibrum?

c. If the government wanted to use fiscal policy to move the economy to equilibrium, by how much would it have to increase government spending? What is the government spending multiplier?

d. If the government decided not to change fiscal policy, describe the process by which the economy would move toward equilibrium.

Expert Solution

Rahul Sunny answered 1 year ago

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