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Question 1

Consider the following information for Japan.

Autonomous Consumption390
MPC0.9
Tax Rate0.25
Investment1000
Government Expenditure100
Exports40
MPI0.25

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

 

Hint




Question 2

Suppose that there is a decrease in Autonomous Consumption by $20.

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

 

Hint




Question 3

What is the difference between the original and new GDP as a result of a decrease in Autonomous Consumption?

 

Hint