Aggregate expenditures analysis

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Aggregate Expenditures Analysis

Assume that when an economy has a GDP of $500, Consumption is $550. The MPC is .75. Investment is 25. Begin the problem by setting up an Income/Consumer. Set up only the first two columns (1) and (2).

Graph the Consumption Function.

Add Investment to the graph.

What is the multiplier? (Use the formula on page 233)

What is the Break-Even level of Income? (Do not include Investment)

What is the Equilibrium level of Income? (Include Investment)

What would be the new equilibrium in this economy if Investment increased by $12?

As always, be sure to show your work and explain your answers.

Reference no: EM131167495

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