1. Suppose you are given the following information for an economy without government spending,
taxing, exports, or imports. C is consumption, I is investment, and Y is national income. C and I
are given by: C=200+0.6YD,G=100 a) What is the equation for the aggregate expenditure (total
demand) function? Draw the total demand curve in a diagram with national income Y on the X axis
and total demand Z in the Y axis and clearly indicate the intercept on the Y axis and the slope of
this curve b) What is the equilibrium condition and what is the equilibrium national income (GDP)?
c) Assume that government spending G decreases from 100 to 80 , what would be the change in
equilibrium national income (GDP) compared to part b)? what is the multiplier of government
spending G? Briefly explain intuitively why government spending has a nultiplier effect on GDP.
Suppose the equilibrium national income or GDP fell by 10% due to pandemic and the itial
government spending (G) is 100 . By how much would the government spending be creased or
decreased to prevent the decline in GDP?.
1 Suppose you are given the following information for an ec.pdf
1. 1. Suppose you are given the following information for an economy without government spending,
taxing, exports, or imports. C is consumption, I is investment, and Y is national income. C and I
are given by: C=200+0.6YD,G=100 a) What is the equation for the aggregate expenditure (total
demand) function? Draw the total demand curve in a diagram with national income Y on the X axis
and total demand Z in the Y axis and clearly indicate the intercept on the Y axis and the slope of
this curve b) What is the equilibrium condition and what is the equilibrium national income (GDP)?
c) Assume that government spending G decreases from 100 to 80 , what would be the change in
equilibrium national income (GDP) compared to part b)? what is the multiplier of government
spending G? Briefly explain intuitively why government spending has a nultiplier effect on GDP.
Suppose the equilibrium national income or GDP fell by 10% due to pandemic and the itial
government spending (G) is 100 . By how much would the government spending be creased or
decreased to prevent the decline in GDP?
