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Q3 The economy Investia has parameters identical to Keynesia, except for planned investment, which is not fully autonomous. Instead of being $900 million, planned investment
Q3 The economy Investia has parameters identical to Keynesia, except for planned investment, which is not fully autonomous. Instead of being $900 million, planned investment now is given by IP = $300 million + 0051'. a. Show that the equilibrium output for Investia is also $12 billion. b. Submission not required, for discussion in class. If you were to sketch the aggregate expenditure line for Investia in a Keynesian Cross, how would its slope differ from the aggregate expenditure line for Keynesia? c. Suppose the rest of the world's purchases of Keynesia s exports fall by $600 million. i. By how much does equilibrium output fall? What IS the expenditure multiplier for Investia? ii. By comparing Investia's expenditure multiplier against Keynesia's (in leii), explain how the way planned investment reacts to output changes makes Investia's economy more volatile than Keynesia's
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