Select the topic that you are answering:

$125$ marks

Consider the following open economy:

$Y=C+I+G+x-M$

$C=150+0\mathrm{.}7(Y-T)$

$I=450-5000r$

$G=150$

$x=80$

$M=0\mathrm{.}01Y$

$T=100$

Where $Y$ is GDP$,C$ is consumption, I is investment, $G$ is government expenditures, $x$ is exports, $M$ is imports, $T$ is taxes, and $r$ is the interest rate. Suppose that if the economy were at the full employment level of output $($i$.$e$.,$ at its natural level of output$).$ GDP would be $2000.(5$ marks each$)$

a$.$ What is the marginal propensity to consume in this economy?

b$.$ What would be the net exports at full employment level of output?

c$.$ Suppose $r$ is $4\%.$ What is the expenditure multiplier for this economy?

d$.$ Solve for GDP when $r=4\%.$ How does it compare with the full employment level of output?

e$.$ Assuming no change in fiscal policy, what change in the interest rate would restore the full employment level of output?