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Suppose the economy is characterized as follows: AE = C + I + G + (X-M) C = 400 + .75(Y - T) - 30
Suppose the economy is characterized as follows:
AE = C + I + G + (X-M)
C = 400 + .75(Y - T) - 30 (r)
I = 500 - 50(r)
G = 400
X- M = -25
T = 80
r = 5
Price level P is fixed at 1 (P=1)
The Consumption function is now C=500 +.75(Y-T) - 30(r). The government spending multiplier in this economy is _______.
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