Reference no: EM131242311
Consider an economy is which taxes, planned investment, government spending on goods and services', and net exports are autonomous, but consumption and planned investment change as the interest rate changes. You are given the following information concerning autonomous consumption, the marginal propensity to consume, planned investment, government purchases of goods and services, and net. exports:
Ca = 1,500 - 20r c = 0.6 Ip = 2,450 - 60r G = 1,980 NX = -200 T = 1,750
(a) Compute the value of the marginal propensity to save.
(b) Compute the amounts of autonomous planned spending, Ap, when the interest rate equals 0, 2, 4,and 6.
(c) Compute the equilibrium levels of income when the interest rate equals 0, 2, 4, and 6. Graph the IS curve.
(d) Suppose that policymakers decide to reduce the number of troops in Iraq, which results in a reduction in government spending of $160 billion. Compute the new amounts of autonomous planned spending, Ap, when the interest rate equals 0, 2, 4, and 6.
(e) Compute the equilibrium levels of income when the interest rate equals 0, 2, 4, and 6
(f) Suppose that policymakers decide to expand health care to those currently without health insurance, which results in an increase in government spending of $80 billion from $1,980 billion to $2,060 billion. Compute the new amounts of autonomous planned spending, Ap, when the interest rate equals 0, 2, 4, and 6.
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