What are leakages and how do they affect the economy

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1. Assume that initial GDP is $1,000 and we want to expand it to $1,600. Average MPC for the country is 2/3. What should be the new level of government spending if the initial level is $100. Also how much of a tax policy change reach to the same results?

2. What are leakages and how do they affect the economy? How can actual investment be greater than desired investment and what type of gap is the economy experiencing when this occurs?

3. Assume you have $2,000 autonomous consumption and given $10,000 disposable income did not allow you to save anything. What will be your MPC?

Reference no: EM13735951

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