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The assignment uses the following terminology in this part: aggregate income Y and dis- posable income Yd (= Y - T ), consumption function C(Yd), planned investment function I(r), government spending G, and taxation T; r% denotes the real interest rate in the economy. (Note, r is in percentage points, e.g. r = 2 means the interest rate is 2%. When doing calculations, the interest rate should not simply be inserted in decimal form. For example, if I(r) = 104 - 1 × r and r = 10 then I(10) = 104 - 1(10) = 94.)
Consider a hypothetical economy where:
-C(Yd)=0+0.7×(Y -T)
-I(r)=104-1×r
-G = 270
-T = 100
-Using the information above, write out the planned Aggregate Expenditure equa- tion. (Hint: Remember that this takes the form of AE = . . . .)
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