1 if c0 392 i 1192 g 779 x 386 mpc 097 t

Question

1) If C₀ = $392, I = $1,192, G = $779, X = $386, mpc = 0.97, t = 0.18, and mpi = 0.13 (All numbers are in real terms and billions.)

a) Calculate the expenditure multiplier.

b) What would Y_R be?

c) What would T be?

d) What would C be?

e) What would M be?

f) What would the government surplus/deficit be?

g) What would the trade balance be?

2) What changes would occur if G were increased to $941?

3) What changes would occur if t were decreased to 0.15?

4) Graph your answers for 1), 2), and 3).

Y_R : real GDP

C : Consumption

C₀ : autonomous consumption

mpc : marginal propensity to consume

I : Investment

G : Government spending

T : Tax revenues

t : aggregate tax rate

X : Exports

M : Imports

mpi : marginal propensity to import