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In the Keynesian cross,assume that the consumption function is given by C=150+0.7(Y-T) Planned investmentis:1=100-10* Government purchases and taxes are both 50 a. Graph consumption as
In the Keynesian cross,assume that the consumption function is given by C=150+0.7(Y-T) Planned investmentis:1=100-10* Government purchases and taxes are both 50 a. Graph consumption as a function of income b.Graph investment as a function of the real interest rate c. Suppose that the real interest rate is 5.To make our calculations simple, we consider the 5% interest rate as5 (instead of 0.05).Write the equation of the planned expenditure. d.Suppose that the real interest rate is 5.To make our calculations simple,we consider the 5% interest rate as5 (instead of 0.05).What is the equilibrium level of income? e. Using the equation of the planned expenditure in 'question c', graph planned expenditure as a function of income.Draw a 45'degree line. Show the equilibrium level of income on the Keynesian cross f.Use the equation of the planned expenditure in question c to answer this question: f government purchases increase to 125, what is the new equilibrium income? g.Calculate the government purchases multiplier h.Use the equation of the planned expenditure in question c to answer this question: Suppose that the government decides to cut taxes by 25. What is the new equilibrium income? i. Calculate the tax multiplier. j.Suppose that the real interest rate increases to 10.To make our calculations simple,we consider the 10% interest rate as 10 (instead of 0.10).Write the new equation of the planned expenditure. Calculate the new equilibrium level of income. k.From questions d and j,we get two combinations of real interest rate and income at which the goods market is in equilibrium.Plot the lS curve by using these two combinations of real interest rate and income
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