a Suppose that the real interest rate (r) is 5. Write the equation of the planned

expenditure ( PE,). Draw planned expenditure ( PE,) as a function of income. Label this

graph quot;figure 1quot;.lt;

PE=C+G+Ilt;

PE=500+0.8(Y-1000)+100-50r+1000-

=800+0.8Y+50re

=1050+0.8Y-

b. Draw a 450 line in figure 1 and find the value of equilibrium level of income on the

Keynesian cross (Y1).~

1050+0.8Y=Y-

0.2Y=1050-

Y*-5250-

c Calculate the government purchases multiplier. And interpret your answer.

5255-5250=5-

AS G ADD 1, Y INCREASE 5Macroeconomics