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An economy is described by the following set of equations: C = 1000 + 0.9(Y-T) I = 2000 G = 1500 Exports = 1000 Imports
An economy is described by the following set of equations: C = 1000 + 0.9(Y-T) I = 2000 G = 1500 Exports = 1000 Imports = 1200 T = 1500 Potential GDP= 31,000 a. What is the short-run Equilibrium? b. Illustrate this economy in a Keynesian Cross Diagram. c. Is this economy experiencing a recessionary expenditures gap or an inflationary expenditures gap? What is the size of the gap? d. By how much would aggregate spending have to change in order to eliminate the output gap? Explain. Note to tutor - need to mostly understand how to answer c and d
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