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Use the information below for a four sector economy, answer the following questions:

C=700+0.7Yd

T=110

I=500

G=600

X=100

M=50+0.2Y​

C= Consumption function

T= Tax function

I= Investment function

G= Government expenditures function

X= Export function

M= Import function

Y= National Income

YD= Disposable Income function

Yf = Full Employment Income

Ye = Equilibrium income

a. What is the value of autonomous expenditures? b. What is the slope of aggregate expenditure?

c. What is the value of equilibrium GDP?

d. What is the value of the autonomous tax multiplier? e. What is the value of Consumption (C) at equilibrium?

f. What is the value of Savings at equilibrium?

Answer :

The calculation for parts c and f requires additional information that was not provided in the question. Please provide the values of G, X, and M to complete these calculations.

a. The value of autonomous expenditures (AE) is the sum of autonomous consumption (C) and autonomous investment (I). From the given information, C is 700 and I is 500. Therefore, AE = C + I = 700 + 500 = 1200.

b. The slope of the aggregate expenditure (AE) can be determined by calculating the marginal propensity to consume (MPC). In this case, the MPC is given by the coefficient of Yd in the consumption function, which is 0.7.

c. The value of equilibrium GDP (Ye) is the level of national income where aggregate expenditure (AE) equals national income (Y). In this case, AE is equal to C + I + G + X - M. Given the values of C, I, G, X, and M, we can substitute them into the equation and solve for Ye.

d. The value of the autonomous tax multiplier (TM) can be determined using the formula TM = -MPC / (1 - MPC) = -0.7 / (1 - 0.7) = -0.7 / 0.3 = -2.33.

e. At equilibrium, consumption (C) is equal to AE, which is equal to national income (Y). Therefore, Consumption (C) at equilibrium is equal to national income (Y).

f. Savings at equilibrium can be calculated by subtracting consumption (C) at equilibrium from national income (Y).



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