An economy is described by the following equations:

C = 10 + 0.7(Y-T)

Ip = 80

G = 104

NX = 15

T = 170

Y* = 600

1) Find a numerical equation linking planned aggregate expenditure to output.

2) Find autonomous expenditure and induced expenditure in this economy.

3) Find the value of a short-run equilibrium output and construct a Keynesian-cross diagram.

4) Find the effect on short-run equilibrium output of a decrease in government purchases from 104 to 89.

5) Find the effect on short-run equilibrium output of an increase in tax collections from 170 to 200 (Leave everything else in the original state).

6) Find the effect on short-run equilibrium output of a decrease in planned investment spending from 80 to 71 (Leave everything else in the original state).

Hints:

Y is not equal to Y*.

1. Calculate it twice to be sure you get the same answer, if you don’t, calculate again the 3rd time.

3. You may solve it mathematically or using the table method as described in the book.

4, 5, 6 — I am looking for the numerical value of Y in each case.