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Question 1

Consider the following infomation for Mexico.

Autonomous Consumption330
MPC0.9
Tax Rate0.05
Investment800
Government Expenditure100
Exports40
MPI0.4

What is the equilibrium level of GDP in the income-expenditure model?

 

Hint




Question 2

Suppose that there is an increase in Government Expenditure by $40.

What is the new equilibrium level of GDP in the income-expenditure model?

 

Hint




Question 3

What is difference between the original and new level of GDP as a result of an increase in Government Expenditure?

 

Hint