Discussion:
You are an economic advisor to the government of Country X. With the help of your students, you have determined that the following equations summarize the main macroeconomic relationships for the economy.
C = 45 + .8Y
I = 30
G = 25
1. Calculate and graph aggregate expenditures, aggregate production and equilibrium GDP.
2. Compute the value of the multiplier.
According to your calculations, full employment would require a GDP of 600.
3. How much must government spending change (and in what direction must it change) to bring Country X to full employment GDP?
4. How much must individual income taxes change (and in what direction) in order to being Country X to full employment?