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Calculating Aggregate Demand
Consider a hypothetical economy where total demand is determined by the spending of households, firms, the government, and the net effect of international trade. The economy is described by the following parameters:
- Autonomous consumption = 150
- Marginal propensity to consume = 0.75
- Tax rate = 0.20
- Autonomous investment = 250
- Interest rate sensitivity of investment = 10
- Interest rate = 5% (use r=5 in your calculation)
- Government spending = 300
- Exogenous exports = 180
- Marginal propensity to import = 0.15
Using the standard expression for aggregate demand, calculate the total demand in this economy if the total income is 2000.
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