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QUESTION 16 Suppose that planned investment and planned govemment purchases do not depend on income: I = 15 and G = 1?. Consumption, as you
QUESTION 16 Suppose that planned investment and planned govemment purchases do not depend on income: I = 15 and G = 1?. Consumption, as you would expect, does depend on income via the consumption function C = 2 + 0.75Y 0.75T. Net taxes are T = 12. Your friend thinks that the equilibrium will be where Y = 150 but he is wrong. What is the best description of this situation? the (Y, AE) point is above the 45 degree line, Y will adjust down O the (Y, AE) point is above the 45 degree line, Y will adjust up O the (Y, AE) point is below the 45 degree line, Y will adjust down O the (Y, AE) point is below the 45 degree line, Y will adjust up (continued) Help you friend by calculating the equilibrium income for the AE model in the previous question. Y
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