Project #15213 - Economics 200

Consider the following model of aggregate demand, in which there is no international trade, the price level is fixed, and the symbols are defined as in class (all dollar amounts in billions):

C(Consumption)=40+(7/8) x DI(Disposable Income)

I(Investment)=10

G(Government Purchases)=30

Taxes=(1/7)xGDP

Determine the equalibrium GDP in this economy (show your work). Draw this equalibrium on a labled graph. Then use the mulitiplier to determine what will happen to equalibrium GDP if there is an exogenous 7 billion dollar increase of government purchases. As a result of this change, what will happen to the equalibrium values of consumption, saving, and the government budget deficit? Explain

 

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Due By (Pacific Time) 10/24/2013 12:00 pm
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