Discussion:
In an economy in which government expenditure is $100 billion, exports are $60 billion, imports are 15 percent of real GDP, autonomous consumption is $250 billion, investment is $350 billion, and the marginal propensity to consume is 0.75.
a) Draw the aggregate expenditure (AE) curve and indicate the equilibrium value.
b) What are the slope and the vertical intercept of the AE curve?
c) What is the multiplier?
d) If investment rises to $450 billion, what will be the new equilibrium real GDP?
e) What is the impact on balance of trade in question (d)?