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Econ 102 SI Chapter 11 Revision 04/09/08 Questions 1. Use the following information to answer the next questions Y=C+I+G C=125+0.75(Y-T) I=200-10r G=150 T=100 a. Calculate the various levels of planned Investment and Equilibrium level of Income that match the following interest rates given on the table below Interest Rate (%) Planned investment Equilibrium level of Income 0 5 10 100 1200 15 20 b. Draw an investment curve as related to real interest rate c. Plot a graph that shows the relationship between r and Y 2. Given the following information on an economy (all numbers are in billion dollars): C=125+0.75(Y-T) I=200-10r G=150 T=100 a. Calculate I and equilibrium Y at r=10 b. Suppose that government purchases increase by $1 billion to $151 billion while other variables stay constant. By how much does Y (equilibrium level of output) change? What is the new equilibrium level of output c. Draw a planned expenditure graph and IS graph to show the change in G and Y d. Now assume that G=150 and all other variables are at their original numbers. If T increase by $1 billion to $101 billion by how much does Y change. What is the new Y. e. Draw a planned expenditure graph and IS graph to show the change in T and Y Use the following information to answer the next two questions. The consumption function of consumers in an economy is C=100+0.8(Y-T) 3. What is the government purchases multiplier a. 0.8 b. 1.25 c. 4 d. 5 4. If taxes decrease by $1, the equilibrium level of income will a. Decrease by $5 b. Decrease by $4 c. Increase by $5 d. Increase by $4 5. If both taxes and government purchases increase by $1, the equilibrium level of income will a. Remain constant b. Increase by $3 c. Increase by $1 d. Decrease by $4