Question
Given the following information for the Macro Economy answer the following questions.
In this economy we have an MPC equal to 0.80, Autonomous Consumption of $600 billion, Planned Investment (I) of $1,000 billion, Government Spending (G) of $1,200 billion and Net Taxes (T) of $1,000 billion.
a) Fill in the missing data for: T, Yd, C, S, and AE (in that order in a table) for every level of Y given below (all the numbers are in billions).
Income (Y) Net Taxes (T) Disposable Income (Yd) Consumption (C) Savings (S) Aggregate Expenditures (AE)
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
b) Determine the Equilibrium level of Aggregate Income (Ye). Please state the reason for your answer.
c) Calculate the Spending Multiplier (show how you got your answer).
d) State in one sentence what your answer in (c) above tells us about any decrease in spending that takes place in the economy.
e) If this economy had a full employment level of income equal to $8,000 billion, what Macroeconomic condition is this economy experiencing.
f) Using the Spending Multiplier, determine the change in G that is needed to get this economy to be in equilibrium at full employment. Please show your work.
g) Using the Spending Multiplier, determine the change in T that is needed to get this economy to be in equilibrium at full employment. Please show your work.
