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Unformatted text preview: Equilibrium level of income is when Y = AE = C +I + G + NX = $56,000 MPC = change in consumption/change in income = .75 MPS = 1 - MPC = 1 - .75 = .25 Multiplier = 1/MPS = 1/.25 = 4 If government expenditure increases by $20,000, the euilibrium level of income is likley to increase 4 times (multiplier being 4) = 20,000 * 4 = $80,000 Therefore the the new equilibrium level of income is going to be $136,000 ($56,000 + $80,000) The graph was just like on page 147 on the book....
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- Winter '10
- Economics, Equilibrium point, aggregate expenditures, AEIncomeew AE Income