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Question: In an economy, autonomous consumption expenditure is $50 billion, investment is $200 billion and government expenditure on goods and services is $250 billion. The marginal propensity to consume is 0.7 and net taxes are $250 billion. Exports are $500 billion and imports are $450 billion. Assume that net taxes and imports are autonomous and the price level is fixed ,
a. what is the consumption function
b. what is the equation of the AE curve
c. calculate equilibrium expenditure
d. calculate the multiplier
e. if investment decreases to $150 billion, what is the change in equilibrium expenditure.
f. describe the process in part(e) that moves he economy to its new equlibrium expenditure.
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