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# Assign10 - James E Pesando Economics 100 Assignment#10...

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James E. Pesando Economics 100 Assignment #10 National Income and The Multiplier 1. In a particular economy, the following relationships hold (all amounts are in \$billions): C = 25 + 0.6YD T = 10 + 0.15Y I = 30 G = 40 X = 15 M = 0.01Y The price level is fixed. (a) What is the equilibrium level of national income? Show your calculation. AE=C+I+G+X-M AE=25+0.6YD+30+40+15-0.01Y AE= 25+-.6[Y-(10+0.15Y)]+30+40+15-0.01Y AE=104+0.5Y Therefore, Y=AE Y=104+0.5Y Y=208 YD=Y-T (b) If the level of national income were below the equilibrium level, would actual inventory investment equal desired inventory investment? How would firms respond? Explain your answer. AE>Y Firms inventory will involuntarily decline Firms desired level of inventory> their actually level Firms increase production (c) To combat a recession, the Government decides either to increase expenditures by \$2 billion or to reduce taxes by \$2 billion. Which policy will have the larger impact on autonomous expenditure? On national income? Explain your answer. (note: a numerical answer is not an explanation).

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Assign10 - James E Pesando Economics 100 Assignment#10...

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