# Calculate simplified expressions for the consumption function, investment function, and the net export function.

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1)
Suppose you have the following information: .0/msohtmlclip1/01/clip_image003.jpg”>

mpc = .75, d =
0.3, x = 0.1

a)
(4 points) Calculate simplified expressions for the
consumption function, investment function, and the net export function.

b)
(4 points) Calculate an expression for the IS curve, Y
in terms of r

c)
(5 points) Draw a graph of the IS curve and locate
equilibrium output when the real interest rate = 2 as point A and equilibrium
output when the real interest rate = 5 as point B.

d)
(4 points) Explain why equilibrium output is different
at point B relative to point A. Be specific.

e)
(4 points) Now suppose government purchases rise to
\$4.2 trillion (from \$3.5 trillion), what will happen to equilibrium output when
r = 2 (label as point C)? When r = 5 (label as point D)

f)
(4 points) What is the government expenditure
multiplier in this example and what does it depend on?

Suppose you have the following information:

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