How would this change affect output and income

Reference no: EM133537293

Assignment:

Consider Country Z's aggregate demand which comprises four sectors (i.e., households, firms, government, and foreign trade). The following equation represents the country's equilibrium output and income: Y*= ( () ) 0 -(-) Assume that due to rising interest rates Country Z's autonomous consumption c declines by $300m, while other things remain the same.

(i) How would this change affect output and income? Provide reasoning for your answer.

(ii) What should the government do to prevent a possible economic recession?

Reference no: EM133537293

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