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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