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4. Consider an economy with the following characteristics: Consumption function is C = 100 + 0.8YD;
Planned investment: I = 50; Government expenditure: G = 60; The tax function: T = 0.3Y; 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; YD is
disposable income; Y is real GDP; G is government purchases of goods and services; T is taxes; I is planned investment expenditure; X is exports, and M is imports. a. Write the aggregate expenditure function and find out the value of equilibrium level of income of the economy (3 marks)
b. What is the value of consumption expenditure of the economy? (2 marks) c. Define the concept of multiplier. Calculate the size of the multiplier of the economy it government expenditure rises from $60 billion to $100 billion. (2

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In any economy Income = Expenditure Y is... View the full answer

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