Consider a closed economy with a government.  Consumption is given by C = 1,000 + 0.8Yd   Further, t = 0.2, I = 500 and G = 300. Compute the equilibrium level of output. Suppose that G rise

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Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?
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Consider a closed economy with a government.  Consumption is given by

C = 1,000 + 0.8Yd   Further, t = 0.2, I = 500 and G = 300.

  • Compute the equilibrium level of output.
  • Suppose that G rises to 400. How much of Y rises as a result?  
  • Compute the size of the expenditure multiplier.
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