Problem:
Use the following information on the variables in the open economy aggregate expenditure model:
• Autonomous Consumption C0= 200
• Autonomous Investment I0= 200
• Government Spending G0=100
• Export Spending X0 =100
• Autonomous Import spending M0= 100
• Taxes T0=0
• Marginal propensity to consume c1= 0.8
• Marginal propensity to invest i1= 0.1
• Marginal propensity to import m1= 0.15
Required:
Question 1: Compute the equilibrium level of income
Question 2: If Government spending rises from 100 to 300, compute the new equilibrium
Question 3: Compute the value of multiplier.