# 1. Consider an economy where aggregate expenditures can be characterized by the following information: household consumption...

1. Consider an economy where aggregate expenditures can be characterized by the following information: household consumption C = 100+ 0.8Yd, investment expenditure 1 = 100, government expenditure G = 300, exports X = 300 and imports IM = 0.14Y. Suppose that the income tax rate is 20%, and that the government has no initial debt, so that D = 0.
(a) Solve for the AE function and the equilibrium level of national output Y. (b) Solve for the government's budget position and the trade balance for the economy. (C) Now suppose that because of a drop in consumer confidence in the U.S., exports fall to X = 200. Find the new equilibrium level of GDP Y". What is the value of the multiplier in this economy? (d) Find the new trade balance for the economy. Why is the drop in the trade balance less than the drop in the level of exports?

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