Homework Answers
Real GDP is 190 billion and everyone consumes (100 - 21) = 79% of income.
Hence consumption is 79% of 190 = 150.10 billion
Investment is fixed at 65 billion
This implies that aggregate expenditure (AE = C + I) is 215.10 billion
Since AE > Y we expect that inventories will decrease and firms will produce more so that output will increase.
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