Assume an economy were characterized by the following equations
C()/(b)=ar (C)+bDI
I()/(b)=ar (I)+eY
G()/(b)=ar (G)
T()/(b)=ar (T)
x=\bar{x} +(f)/(b)ar (Y)^(**)
IM()/(b)=ar (Z)-hDI
where the notation follows class notation ( I is investment, i is interest rate, etc.) with /bar (C),b(,)/(b)ar (I),d,e(,)/(b)ar (G)(,)/(b)ar (T),\bar{x} (,)/(b)ar (Z),f,h denoting parameters, all of which are positive and DI denoting disposable income. /bar (Y)^(**) is foreign (think of export markets as foreign) income, which is exogenously given. We assume that h.
(a) (5 pts.) Find the equation of the aggregate expenditure curve.
(b) (5 pts.) Find short-run equilibrium GDP.
(c) ( 5 pts.) If government spending increases by 1 unit, how much does equilibrium GDP change? What happens if foreign GDP increases?0 and h.
(a) (5 pts.) Find the equation of the aggregate expenditure curve.
(b) (5 pts.) Find short-run equilibrium GDP.
(c) ( 5 pts.) If government spending increases by 1 unit, how much does equilibrium GDP change? What happens if foreign GDP increases?
