Assume the following information for an economy: Natural level of output = $190b Autonomous consumption = 50
Total investment = 16
Government expenditure = 19
Autonomous taxation = 20
Marginal propensity to consume = 0.6
Based on this information answer the following questions:
a) Calculate the actual equilibrium level of output for this economy.
b) Calculate the output ratio for the economy.
c) Using the Phillips Curve illustrate the current approximate position for the economy and identify this as point A.
d) Assume the government increased spending by $5b. Calculate what the new equilibrium level of output will be.
e) As a result of d) indicate how this will likely impact the economy using the Phillips Curve model from c). Label the new position the economy will approximately be at as point B.
f) Discuss whether the government actions in d) are consistent with the objectives of economic stablisation. Include within your discussion reference to what the goals and objectives of economic stabilisation entail.
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