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1. Suppose consumption is given by C = 1000 + 0.75 x Disposable Income while investment is given by I = 2000 - 20r. If government expenditures equal 0 (no expenditures) and the tax rate is 1/3 (the government collects 1/3 of income as tax revenue), what is the equation of the IS curve? What are the values r-intercept and the Y- intercept?
2. Using the data from #1, compute the value of the multiplier.
3. Using the data from #1, suppose the full employment level of output is 5000. What is the full employment equilibrium level value for r?
4. Using the data from #1, what is the government's budget balance at the full employment level of output?
5. Using the data from #1, suppose that the government decides to start spending. This raises government purchases from 0 to 2000. What is the equation for the new IS curve? By how much...
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