3. An economy is described by the following equations:
C = 1,800+0.6(Y - T)
I p = 900
G = 1500
NX = 100
T = 1,500
Y* = 9,000
a. Find a numerical equation linking planned aggregate expenditure to output.
b. Find autonomous expenditure and induced expenditure in this economy.
4. For the economy described in Problem 3:
a. Construct a table like Table 22.1 to find short-run equilibrium output. Consider possible values for
short-run equilibrium output ranging from 8,200 to 9,000.
b. Show the determination of short-run equilibrium output for this economy using the Keynesian-cross
diagram.
c. What is the output gap for this economy? If the natural rate of unemployment is 4%, what is the actual
unemployment rate for this economy? (Hint: Use Okun's law)
5. For the economy described in Problem 3 and 4, take as given that the multiplier for this economy is 2.5.
Find the effect on short-run equilibrium output of
a. An increase in government purchases from 1,500 to 1,600.
b. A decrease in tax collection from 1,500 to 1,400 (leaving government purchases at their original value)
c. A decrease in planned investment spending from 900 to 800.
6. An economy is initially at full employment, but a decrease in planned investment spending (a component
of autonomous expenditure) pushes the economy into recession Assume that the mpc of this economy is
0.75 and that the multiplier is 4.
a. How large is the recessionary gap after the fall in planned investment?
b. By how much would the government have to change its purchases to restore the economy to full
employment?
c. Alternatively, by how much would the government have to change taxes?
8. An economy is described by the following equations: