lectureAssignment21 - ECONOMICS 100 Lecture Assignment #21...

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ECONOMICS 100 Lecture Assignment #21 (The Simple Theory Extended) Source: LR11, Chapter 22, including appendix; LR10, Chapter 23 including appendix. 1. Adding the Government Sector Consider now a model that also has a government sector which spends on goods and services (G), and imposes lump sum taxes (T). The equations describing the behaviour of this economy follow below. All of the other assumptions as given in LA #20 still hold. Consumption Function C = 102 + .8Yd Investment Function I = 100 Government Spending G = 200 Personal Taxes T = 240 Disposable Income Yd = Y - T 1.1 Give an equation for aggregate expenditure (AE), using symbols; what is its slope? 1.2 To what level of income (Y) will this economy tend? 1.3 What would happen if income was temporarily below that level? 1.4 If government spending is increased by $1, by how much will the equilibrium level of income increase? (i.e., what is the "government spending multiplier" ?) 1.5 Suppose the "full employment" level of income (Y
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lectureAssignment21 - ECONOMICS 100 Lecture Assignment #21...

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