Keynesian Extra

Equilibrium in a Simple Keynesian Model: Numerical Example
Suppose that the following parameters apply to an open economy with__a government that is running a balanced budget.
Autonomous consumption = $200 billion
Marginal propensity to consume = 0.8
Investment = $50 billion
Taxes (lump sum) = $40 billion
Government spending (G) = $40 billlion
Exports (X) = $80 billion
I F t” M = 0.lY x M-’
mport unc ion 3 /A __ /_ I

Answer the following questions: C I C C Yd»

1. Write an expression for the consumption function (don’t forget the

taxes!)
2. Write an expression for the aggregate expenditure function.
3. Find equilibrium income.

4. What is the marginal propensity to import?
5. What is the size of the trade deficit/surplus‘?
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