An economy is described by th

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Economics
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An economy is described by the following data: C = 40 + 0.8 × (Y – T) IP = 70 G = 120 NX = 0 T = 150 Y* = 600 1.  [3 points] Find the planned aggregate expenditure equation that represents aggregate demand for this economy. Find the short-run equilibrium output. Is there an output gap occurring in this economy? 2.  [2 points] Suppose that economic expansions abroad increases the demand for the country’s exports; as a result, NX rises to 100. What is the new short-run equilibrium output? Is the economy experiencing a recession or an expansion? 3.  [2 points] Suppose instead that foreign economies are slowing, reducing the demand for the country’s exports, so that NX = – 100. What is the new short-run equilibrium output? Is the economy experiencing a recession or an expansion? 4.  [1 point] Suppose that in trying to help eliminate the output gap that resulted in question # 3, the government performs a fiscal stabilization policy by changing government spending to move actual output back to potential/long-run levels. Illustrate through a flow chart how changing government spending leads to changes in actual output (use the components in the planned aggregate expenditure equation and the consumption function in your answer).

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