Question 7 (20 points): Assume a closed economy with no government. Suppose that

autonomous consumption equals $400, planned investment equals $500, and the mpc equals 0.9.

a. What is the value of the multiplier? How much may aggregate output increases for every

dollar increase in planned investment spending? Trang/ Page: 2

b. If aggregate output is equal to $10,000, then what is the value of unplanned inventory

investment?

Now assume that government expenditure equals $200, net taxes equals $50.

c. If government increases their spending by $50 and increases net taxes by 50, then how

much will equilibrium aggregate output change?

d. How much is the equilibrium level of aggregate output?