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Consider a small country with a potential level of real GDP equal to $4000 million. Consumers spending behavior is described by the equation, C =
Consider a small country with a potential level of real GDP equal to $4000 million. Consumers spending behavior is described by the equation, C = 500 + 0.75DI while firm's investment behavior is described by the equation, I = 800 - 40r. Trade is allowed and currently, net exports is - 500. The government's spending is fixed at $850 million and net taxes is described by the equation: T = 200 + 0.2Y. The current interest rate is 5%. (Question 3 of 5) Consider that the government increases interest rates to 10%. Given the government's policy, what will be the new equilibrium level of GDP (in millions of dollars)? (report your answer at 2 decimal places)
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