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What is the level of actual investment

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Reference no: EM133237023

Given the following model:

Consumption: C = 500 + 0.5Yd
Investment: I = 250
Government Expenditure: G = 100
Proportional Tax Rate: t = 0.1
Imports: M = 0.25Y
Exports: X = 50
Yd: Disposal Income
Y: Real GDP
(Note: There is no lump-sum tax)
Given the following model:
Consumption: C = 500 + 0.5Yd
Investment: I = 250
Government Expenditure: G = 100
Proportional Tax Rate: t = 0.1
Imports: M = 0.25Y
Exports: X = 50
Yd: Disposal Income
Y: Real GDP
(Note: There is no lump-sum tax)

a) If the current level of output is 1000, what is the level of actual investment?

b) Calculate the equilibrium real GDP

c) Given your answers to part (a) and (b), explain how the economy will adjust to short-run equilibrium

d) Calculate the multiplier

e) Calculate the government budget surplus or deficit

f) Calculate the trade surplus or deficit

g) If the potential GDP of this economy is 1500, explain (with corresponding calculations) how the government can close the output gap by adjusting government expenditures.

Reference no: EM133237023

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