(Solution) An economy has the following characteristics. All values are in \$millions. C = 120 + 0.9YD YD = Y + TR - T T = 100 + 0.1Y I = 500 G = 600 TR = 200 X... > Snapessays.com

(Solution) An economy has the following characteristics. All values are in \$millions. C = 120 + 0.9YD YD = Y + TR - T T = 100 + 0.1Y I = 500 G = 600 TR = 200 X...

4. An economy has the following characteristics. All values are in \$millions.C = 120 + 0.9YDYD = Y + TR - TT = 100 + 0.1YI = 500G = 600TR = 200X = 700IM = 300 + 0.2YWhere C is consumption, YD is disposable income, T is taxes, TR is transfer payments, I is investment, G is government expenditure, X is exports and IM is imports.a) What is the value of the marginal propensity to save?b) What is the value of the autonomous expenditure multiplier?c) Calculate the value of the equilibrium level of real GDP?d) Suppose that the full employment level of GDP is \$5000m. State the type of output gap persistent in this economy and calculate its size.e) Suppose the government aims to stimulate the economy as the result of the output gap in (d) above. Explain which macroeconomic policy action you would recommend. Give both the direction and the magnitude of your policy action.

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