Question

An economy is described by the following equations: C = 100 + 0.75(Y – T) IP...

An economy is described by the following equations:

C = 100 + 0.75(Y – T)

IP = 50

G = 150

NX = 20

T = 40

What is the marginal propensity to consume (MPC) in this economy?

Find the autonomous expenditure (the part of PAE that does not depend on Y)

What is the equilibrium level of output?

Assume that the economy is NOT in equilibrium, and the level of output is Y=1,200. How much is planned spending (PAE)?

Assume that the economy is NOT in equilibrium, and the level of output is Y=1,200. Should firms increase or decrease production in order to move towards the equilibrium?

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