Assignment: A Change in Autonomous Spending:
Suppose that when aggregate output equals zero, consumption equals $100 billion, autonomous investment equals $200 billion, government purchases equal $50 billion, and net exports equal $50 billion. Suppose also that MPC is 0.9 and MPM is 0.1.
Question 1: Construct a table showing the level of aggregate spending, net exports, and saving plus net taxes for aggregate output levels of zero, $500 billion, and $1,000 billion.
Question 2: Use autonomous spending and the multiplier to calculate the equilibrium level of real GDP demanded.
Question 3: What would be the new level of real GDP demanded if an increase in the U.S. interest rate caused net exports to change by $50 billion? Explain.