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Derive the aggregate expenditure function

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Reference no: EM132415020

An open economy is modeled as follows

C = 500 + 0.75(Y-T)

I = 800 + 0.20Y

G = 700 X = 300

M = 150 + 0.10Y

T= 100

where

T = taxes

C = aggregate consumption expenditures

I = aggregate private investment expenditures

G = final government consumption expenditures

X = aggregate export,

M = aggregate import

1. Derive the aggregate expenditure function.

2. What is the spending multiplier in this economy?

3. Derive equilibrium income in the economy and plot the goods market equilibrium on a two-dimensional plot.

4. An increase in government outlays from 700 to 800 causes the marginal propensity to import to rise to .7; what will be the new equilibrium level equilibrium income?

5. As a policymaker, did the fiscal expansion achieve its objective of boosting equilibrium income? (you must explain and be very specific).

Reference no: EM132415020

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