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. Consider an economy described by the following equations. Ip = 700 X = 100 T = 1500 Y* = 10000 Cd = 1800 + 0.6(Y-T) G...

. Consider an economy described by the following equations. Ip = 700 X = 100 T = 1500 Y* = 10000 Cd = 1800 + 0.6(Y-T) G = 1500 M = 0 u* = 4 where Cd is consumption on domestically produced goods, G is government expenditure, M is imports, u* is the natural rate of unemployment, P is planned investment spending, X is exports, T is tax revenue and Pis potential output.

Derive the equation for planned aggregate expenditure as a linear function of output, Y.

Find the short-run equilibrium for this economy.

Illustrate the equilibrium on a 45-degree diagram.

Suppose there is a decrease in planned investment spending from 700 to 500. a. Calculate the effect on short-run equilibrium. b. Calculate and explain the multiplier. c. Illustrate your answer on the diagram. d. Calculate the change in the output gap for this economy.

Why did the Global Financial Crisis in 2008 cause a recession in the United States and many other countries? Why did it not cause a recession in Australia?

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** How IP 700 loco 1500 ya 10800 cd = 18.00 +0.667-7) in = 1500 MEO, Uau ! Planned agaegate expenditure (PAC) cat Ipt Gr + (XDecrease Invest from 700 to 5oo. DI = [500-700] =~200 Y = Catip ta tx-M. => y = 1800+ 0.6 (7-1500) + (x-M) tita => y = 1800 +New planng Aggregate expenditure PAC Need = 1800 +0.64-1500) +500 + 150o+(100-0) ya 3000 +0.69 -> Ya 30.00 => yhow 27500 10,0

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