1. In the Keynesian cross, assume that the consumption function is given by: C=$85+0.7(Y−T). Planned investment is $200, government purchases and taxes are both $50.
a. Graph planned expenditure as a fraction of income.
b. What is the equilibrium level of income?
c. If government purchases increase to $65, what is the new equilibrium income?
d. What level of government purchases is needed to achieve an income of 1160? Assume taxes remain at $50.
e. What level of taxes is needed to achieve an income of $1160? Assume government purchases remain at $50.
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