Consider a simple economy with exogenously determined taxes, investment, and government expenditure. T = $1,025 billion, G = $1,332 billion, and I = $650 billion. Autonomous consumption is $110 billion, and the marginal propensity to consume is 0. 8. NX = 0.
a. What is the consumption function in this economy?
b. Compute the equilibrium level of GDP.
c. Suppose full employment output is $7,000 billion. What level of government expenditure could get the economy there, assuming it causes no change in the price level?