Question 1An economy is described by the following equations, where all the variables have theusual definition:C = 1700 + 0.8 (Y - T) - 2000rIP = 3000 - 1100rG= G = 2500X = X = 80%3DM= 0.06YT=T = 2500a) Find an equation relating planned spending to output and the real interest rate. Alsofind the short-run equilibrium output when real interest is 7%. .b) Find the income-expenditure multiplier.c) If potential output = 20000, by how much would government purchases have tochange in order to eliminate any output gap?

Consumption (C) = 1700+0.8(Y-T) - 2000r Investment (Ip) = 3000 - 1100r Government expenditure (G) =…

Answered: ne short-run equilibrium output when…

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ne short-run equilibrium output when real interest is 7%. b) Find the income-expenditure multiplier.

ENGR.ECONOMIC ANALYSIS

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Chapter1: Making Economics Decisions

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