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We use the following terminology in this part: aggregate income Y and disposable income Ya (= Y - T), consumption function C(Ya), planned investment function
We use the following terminology in this part: aggregate income Y and disposable income Ya (= Y - T), consumption function C(Ya), planned investment function I(r), government spending G, and taxation T = ty where t is the marginal tax rate; % denotes the real interest rate in the economy. (Note, r is in percentage points, e.g. r = 2 means the interest rate is 2%. When doing calculations, the interest rate should not simply be inserted in decimal form. For example, if r = 5 then I(5) = 52 - 0.2 x 5 = 51.) Consider a hypothetical economy where: C(Ya) = 30 + 2/3 x (Y - T) I(r) = 52 - 0.2 x r G = 160 t = 0.4 (represents 40%) 1. Using the information above, write out the planned Aggregate Expenditure equation. (Hint: Remember that this takes the form of AE = .... )
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