Assume an economy in which the marginal propensity to consume, c, is 0.8, the income tax rate, t, is 0.2, and the share of imports in GDP, nx, is 0.04. Autonomous consumption, Ca, is 660; autonomous taxes, Ta, are 200; autonomous net exports, NXa, are 300; planned investment, Ip, is 500; and government spending, G, is 500.
(a) What is the value of autonomous planned spending (Ap)?
(b) What is the value of the multiplier?
(c) What is the equilibrium value of income (Y)?
(d) What is the value of consumption in equilibrium?
(e) Show that leakages equal injections.
(f) Suppose government expenditures decline by 150. Describe the economic process by which the new equilibrium value of Y is attained.
(g) What is the new equilibrium value of Y?