8. The income-expenditure model Consider a small economy that is closed to trade, so its net exports are equal to zero. Suppose that the economy has the following consumption function, where Cis consumption, Y is real GDP, I is investment, G is government purchases, and T stands for net taxes: C 40 + 0.5 x (Y – T) Suppose G = $315 billion, I = $50 billion, and T = $10 billion. Given the consumption function and the fact that for a closed economy total expenditure can be calculated as Y = C+I+G, the equilibrium output level is equal to s billion.
8. The income-expenditure model Consider a small economy that is closed to trade, so its net exports are equal to zero. Suppose that the economy has the following consumption function, where Cis consumption, Y is real GDP, I is investment, G is government purchases, and T stands for net taxes: C 40 + 0.5 x (Y – T) Suppose G = $315 billion, I = $50 billion, and T = $10 billion. Given the consumption function and the fact that for a closed economy total expenditure can be calculated as Y = C+I+G, the equilibrium output level is equal to s billion.
Chapter1: Making Economics Decisions
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![### 8. The Income-Expenditure Model
Consider a small economy that is closed to trade, so its net exports are equal to zero. Suppose that the economy has the following consumption function, where C is consumption, Y is real GDP, I is investment, G is government purchases, and T stands for net taxes:
\[ C = 40 + 0.5 \times (Y - T) \]
Suppose \( G = \$315 \) billion, \( I = \$50 \) billion, and \( T = \$10 \) billion.
Given the consumption function and the fact that for a closed economy total expenditure can be calculated as \( Y = C + I + G \), the equilibrium output level is equal to
\( \$ \text{__________} \) billion.
Suppose the government purchases are reduced by \( \$150 \) billion. The new equilibrium level of output will be equal to
\( \text{__________} \).
Based on the effect of the change in government purchases on equilibrium output, you can tell that this economy's spending multiplier is equal to
\( \text{__________} \).](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F312d8763-4e5f-430b-b9b4-0d2c69ac117c%2Fd6f74554-9b71-4564-9ccc-46fe054838a1%2F2sdcxs_processed.png&w=3840&q=75)
Transcribed Image Text:### 8. The Income-Expenditure Model
Consider a small economy that is closed to trade, so its net exports are equal to zero. Suppose that the economy has the following consumption function, where C is consumption, Y is real GDP, I is investment, G is government purchases, and T stands for net taxes:
\[ C = 40 + 0.5 \times (Y - T) \]
Suppose \( G = \$315 \) billion, \( I = \$50 \) billion, and \( T = \$10 \) billion.
Given the consumption function and the fact that for a closed economy total expenditure can be calculated as \( Y = C + I + G \), the equilibrium output level is equal to
\( \$ \text{__________} \) billion.
Suppose the government purchases are reduced by \( \$150 \) billion. The new equilibrium level of output will be equal to
\( \text{__________} \).
Based on the effect of the change in government purchases on equilibrium output, you can tell that this economy's spending multiplier is equal to
\( \text{__________} \).
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