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2 January, 13:26

For the following economy, find autonomous expenditure, the multiplier, short-run equilibrium output, and the output gap. By how much would autonomous expenditure have to change to eliminate the output gap? C = 3,000 + 0.5 (Y - T) I p = 1,500 G = 2,500 NX = 200 T = 2,000 Y * = 12,000 Instruction: Enter your responses as integer values. Autonomous expenditure:. Multiplier:. Short-run equilibrium output:. Output gap:. Autonomous expenditure would need to by to eliminate the output gap.

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  1. 2 January, 13:37
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    1. Autonomous expenditure = 6200

    2. multiplier = 2

    3. short run equilibrium = $12,400

    4. Output gap = $400

    Explanation:

    Given dа ta:

    C = 3,000 + 0.5 (Y - T)

    I p = 1,500

    G = 2,500

    NX = 200

    T = 2,000

    Y = 12,000

    Calculating the planned aggregate expenditure using the formula;

    PAE = C + Ip + G + Nx

    Substituting, we have;

    PAE = 3,000 + 0.5 (Y - T) + Ip + G + Nx

    PAE = 3,000 + 0.5 (Y - 2,000) + 1,500 + 2,500 + 200

    = 3000 + 0.5Y - 1000 + 1500 + 2,500 + 200

    = 6200 + 0.5Y

    1. Calculating the autonomous expenditure, taking Y = 0, we have;

    autonomous expenditure = 6200 + 0.5*0

    = 6200

    2. Calculating the multiplier using the formula;

    Multiplier = 1 / (1-Mpc)

    = 1 / (1-0.5)

    = 2

    3. Calculating the short run equilibrium, using the formula;

    PAE = Y

    6200 + 0.5Y = Y

    Y - 0.5Y = 6200

    0.5Y = 6200

    Y = 6200/0.5

    Y = 12,400

    (4) Output gap:

    Given output = $12000

    Short run equilibrium = $12,400

    Expansionary output gap = 12,400 - 12,000

    = $400
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