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Y = C + I + GC=α0+α1(Y-T)
α0=20
α1=0.6
G=T=15
I=30
The above describes a simple closed economy.
1) what is equilibrium GDP?
2) what is the marginal propensity to save out of disposable income?
3) what is the average propensity to consume out of disposable income (at equilibrium GDP)?
4) what is the value of the expenditure multiplier?
5) what happens to GDP if G rises by 10 but is simultaneiously financed by an increase in taxes?
6) what are the key assumptions being made in calculating these multipliers?
7) What will be the slope of the IS curve?
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