Consider the following model:
C=20+0.5(Y-T)
I=20-10r
T=0
G=50
QUESTIONS:
d) Suppose now that there is a change in public spending so that G=70. What would be the effect on the IS curve? Show your results in a graph.
e) Suppose now that the change in d) is neutral to deficit so that G=70 and T=20. What would be the effect on the IS curve? Show your results in a graph.
f) Suppose now that interest rate decreases to 0.05. Calculate output and represent your results in a graph.
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