Consider an economy in which tax collections are always $400 and in which the four components of aggregate demand are as follows: GDP Taxes Disposable income consumption investment gov

Consider an economy in which tax collections are always $400 and in which the four components of aggregate demand are as follows:
GDP Taxes Disposable income consumption investment gov. purchases exports minus imports
$1360 $400 $960 $720 $200 $500 $30
1480 400 1080 810 200 500 30
1600 400 1200 900 200 500 30
1720 400 1320 990 200 500 30
1840 400 1440 1080 200 500 30

Find the equilibrium of this economy graphically. What is the marginal propensity to consume? What is the multiplier? What would happen to the equilibrium GDP if government purchases were reduced by $60 and the price level remained unchanged?

2. Consider an economy similar to that in the preceding question in which investment is also $200, purchases are also $500, net exports $30 and the price level is also fixed. But taxes now vary with income and, as a result, the consumption schedule looks like the following:

GDp Taxes Disposable income consumption
$1360 $320 $1040 $810
1480 360 1120 870
1600 400 1200 930
1720 440 1280 990
1840 480 1360 1050

Find the equilibrium graphically. What is the marginal propensity to consume? What is the tax rate? Use you diagram to show the effect of a decrease of $60 in government purchases. What is the mltiplier? Compare this answer to your answer in Question 1. What do you conclude