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Question 1

Consider the following information for Mexico.

Autonomous Consumption500
MPC0.75
Tax Rate0.35
Investment500
Government Expenditure200
Exports30
MPI0.35

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

 

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Suppose that there is a decrease in Exports by $50.

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

 

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

 

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