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A simple Keynesian economy is described by the following set of equations: Consumption = 600 + 0.70Y Investment = 400 + 0.20Y Goverment Spending =
A simple Keynesian economy is described by the following set of equations: Consumption = 600 + 0.70Y Investment = 400 + 0.20Y Goverment Spending = 900 Exports =200 Imports = 100 + 0.10Y Questions 1 Calculate the multiplier in this economy. Explain the meaning of the multiplier effect. |2 marks 2 Find the equilibrium output in this economy. 2 marks 3. Government decides to increase its expenditure by AG=$100. What would be the resulting change in output? What would be the new output? 2 marks] 4. Explain the effect on aggregate expenditure (AE) curve when the government increases its expenditure by AG=$100. 2 marks 5. The labour force is 200 million and the unemployment rate is 10 percent. Two million people quit looking for a job. What is the new unemployment rate? [2 marks)
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