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2. Algebra of the income-expenditure model Consider a small economy that is closed to trade, so that its net exports are zero. Suppose that the

2. Algebra of the income-expenditure model

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Consider a small economy that is closed to trade, so that its net exports are zero. Suppose that the economy has the following consumption function, where C is consumption, Y is income (real GDP), 1; is planned investment, G is government purchases, and T is taxes: C = $15 billion + 0.75 x (Y T) Suppose G = $90 billion, 1;: = $60 billion, and T = $20 billion. Given the consumption function and the fact that, in a closed economy, planned expenditure can be calculated as Y = C + Ip + G, the equilibrium income level is $ billion. Suppose that government purchases are increased by $50 billion. The new equilibrium level of income will be equal to $ billion

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