Suppose Initially That C = 800,I = 300,G = 200,and

question 108

Essay

Suppose initially that C = 800,I = 300,G = 200,and X = -100.
(A)What is GDP?
(B)Calculate the four shares of GDP.
(C)Suppose G increases to 300 and GDP increases to 1,500.What is the new government spending share? Draw a diagram to illustrate what happens to the equilibrium interest rate.
(D)Without doing any calculations,explain what happens to each of the three nongovernment shares of GDP after the government spending and GDP increase in (C).
(E)Suppose instead that G increases to 300 and GDP increases to 2,000.What is the new government spending share? Draw a diagram to illustrate what happens to the equilibrium interest rate.
(F)Without doing any calculations,explain what happens to each of the three nongovernment shares of GDP after the government spending and GDP increase in (E).

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Definitions:

Falsifiable

A criterion for a theory or hypothesis that it can be proven wrong by an observation or a physical experiment.

Falsifiable

The possibility that a hypothesis can be disproven by experimental or observational evidence.

Parsimonious

Describes an approach that is simple or economical in terms of explaining something, often used in the context of scientific theories.

Falsifiable

Refers to a proposition or hypothesis that can be disproven through empirical evidence or experimentation.