Assume that the following apply for an open economy:

Autonomous consumption = 200

Marginal propensity to consume = 0.6

Planned investments = 200

Taxes = 200

Government purchases of goods and services = 150

Exports = 100

Imports = 120

A. Calculate the consumption function of this economy. Simplify as far as possible.

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B. Calculate the autonomous expenditure of this economy.

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C. Calculate the planned aggregate expenditure function.Simplify as far as possible.

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D. Calculate the short-run equilibrium output.

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Suppose that imports now become a function of income and that the import function can be written as:IM=80+0.1Y. Assume otherwise that the remaining variables are the same as before.

E. Calculate the new planned aggregate expenditure function

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and the short-run equilibrium output level.

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F.By how much does the multiplier change when we consider the marginal propensity to import? Calculate it either by percentage change or in absolute term.

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