Consumption function: C=90+0.75Yd. Investment function: I=75. Government spending: G=100. Net export: NX=50. Net taxes: T=50. Disposable income: YdY-T. Equilibrium: Y=C+I+G+NX. a. Solve for equilibrium income. Show your work below. b. If autonomous investment decreases by 60, what is the new level of income? Show your answer on the same graph. Show your work below. c. What is the value of the spending multiplier? Show your work below

Consumption function: C=90+0.75Yd. Investment function: I=75. Government spending: G=100. Net export: NX=50. Net taxes: T=50. Disposable income: YdY-T. Equilibrium: Y=C+I+G+NX. a. Solve for equilibrium income. Show your work below. b. If autonomous investment decreases by 60, what is the new level of income? Show your answer on the same graph. Show your work below. c. What is the value of the spending multiplier? Show your work below

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 5TY

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Given the following for the economy of a country:

Consumption function: C=90+0.75Yd.

Investment function: I=75.

Government spending: G=100.

Net export: NX=50.

Net taxes: T=50.

Disposable income: YdY-T.

Equilibrium: Y=C+I+G+NX.

a. Solve for equilibrium income. Show your work below.

b. If autonomous investment decreases by 60, what is the new level of income? Show your answer on the same graph. Show your work below.

c. What is the value of the spending multiplier? Show your work below.

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