onsider a small economy that is closed to trade, so its net exports are equal to zero. Suppose that the economy has the following consumption nction, 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 × (Y-T) Suppose G= $265 billion, I = $50 billion, and T = $10 billion. $400 billion $500 billion $800 billion Given the consumption function and the fact that for a closed economy total expenditure can be calculated as Y = $700 billion equilibrium output level is equal to billion.
onsider a small economy that is closed to trade, so its net exports are equal to zero. Suppose that the economy has the following consumption nction, 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 × (Y-T) Suppose G= $265 billion, I = $50 billion, and T = $10 billion. $400 billion $500 billion $800 billion Given the consumption function and the fact that for a closed economy total expenditure can be calculated as Y = $700 billion equilibrium output level is equal to 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 +0.5x (Y-T)
Suppose G = $265 billion, I = $50 billion, and T = $10 billion.
$400 billion
Suppose the government purchases are reduced by $100 billion. The new equ prium level of output will be equal to
$500 billion
$800 billion
Given the consumption function and the fact that for a closed economy total expenditure can be calculated as Y = $700 billion equilibrium output
level is equal to $
billion.
$600 billion
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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F59e103a3-6bf8-4294-a82c-02330806f7e2%2F79b75f96-2aab-466b-895b-5dd8ee38f9cd%2F6995l6o_processed.jpeg&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 +0.5x (Y-T)
Suppose G = $265 billion, I = $50 billion, and T = $10 billion.
$400 billion
Suppose the government purchases are reduced by $100 billion. The new equ prium level of output will be equal to
$500 billion
$800 billion
Given the consumption function and the fact that for a closed economy total expenditure can be calculated as Y = $700 billion equilibrium output
level is equal to $
billion.
$600 billion
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
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