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3) Aggregate Expenditure Model: Data for the economy is given below. Use the AE model to answer the following questions. a : 8,000 G =

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3) Aggregate Expenditure Model: Data for the economy is given below. Use the AE model to answer the following questions. a : 8,000 G = 18,000 "I" : 20,500 f = X = 5,000 M : 3,200 [P = 14,000 Y 100.000 a) Set up the AE model. Solve for Y; and CS. Show work. b) Describe the difference between C and IP . c) What does Yf represent? 2-3 sentences. (1) Describe the current state of the economy using terminology from class. 6) Fix the economy using taxes. Show work. f) Set up the AE model and prove that your tax policy moved the economy to full-employment. Show work. g) Draw the round-byround diagram and show 3 rounds of spending. h) If you carry out the round-by-round diagram an infinite number of rounds, how much will RGDP change by? i) Show the impact of the tax policy on the following graphs: AE Model | Business Cycle | Production Possibilities. Use the letter A to show the original position of the economy and the letter B to show the end position. To get started, copy the graphs on the next page into your bluebook

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