1. Economic Expenditures (35 points)

Disposable Income=GDPConsumption Ig G X M

$320000 $340000 $6000 $12000 $8000 $32000

$360000 $370000 $6000 $12000 $8000 $36000

$400000 $400000 $6000 $12000 $8000 $40000

$440000 $430000 $6000 $12000 $8000 $44000

$480000 $460000 $6000 $12000 $8000 $48000

Complete all seven parts (a-g).

a. Solve for net exports and aggregate expenditures at every level of GDP and determine the equilibrium level of GDP.

b. If potential GDP equals $500,000, based upon the equilibrium GDP value from part a, solve for the size of the recessionary gap.

c. If taxes =0.02Y, where Y represents GDP, solve for the cyclical budget deficit.

d. Suppose that government purchases increase by $28000 in each row, meaning that they will now equal $40000. Solve for the new equilibrium GDP that will result from this government purchases change.

e. Would this decision to raise government spending be a decision more likely to be made by a Classical economist, or a Keynesian economist?

f. Solve for the actual multiplier based upon the information provided throughout this problem.

g. Solve for the simple multiplier based upon the information provided throughout this problem.