Question

4. Keynesian cross and Keynesian multiplier: In the Keynesian cross, assume that the consumption function is given by C - 100 +0.5 (Y-T) Planned investment is 75; government purchases and taxes are both 100. a) Graph planned expenditure as a function of income. b) What is the equilibrium level of income? c) If government purchases increase to 110, what is the new equilibrium income? d) How big is the Keynesian government purchases multiplier in this example? e) What level of government purchases is needed to achieve an income of 500?

Answer 1

4 Plamned imest men, I-S 2 T 100. PE PE 275 +0,S (y-100) or, and the Mope, a the line. U 0's bbtum Inceme planes sxpendi Sb, ar n aiit GY) Y= 286-S0 +0.sy Se, the nes ei

2) So, atRaa cr as 125 se, aovocn mem punchaoe dhould be l 26to achieve as income 500 muli plu From the above Now, 足t the new encom els δ00 AY 2. So, the ne o 12S