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Desired aggregate expenditure

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Reference no: EM131423883

Consider an economy characterized by the following equations

AD: Y = 40 - 2P

AS: Y = 10 + P

where Y is national income, AE is desired aggregate expenditure, P is the price level, AS is the aggregate supply. National income is in billions of dollars.

Solve for macroeconomic equilibrium Price and Output. Illustrate the equilibrium in a diagram with P on the vertical axis and Y on the horizontal axis.

Now suppose, all else equal, exports increase by $1.5 billion. Changes the AD to Y = 46 - 2P

Solve for the new equilibrium P and Y.

What is the multiplier for this economy when prices are allowed to change?

Reference no: EM131423883

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