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1. Consider an economy in which C = 1000 + 0.75YD, I = 200, G = 300, T = 300, and (X-M) = 0.
2. Calculate equilibrium GDP
3. Calculate saving at this level of GDP (Hint: use the equation for leakages)
4. Calculate the spending multiplier
5. Calculate the tax multiplier
6. How will equilibrium GDP change is G increases by 100, and what is the new equilibrium level of GDP?
7. How will equilibrium GDP change if G and T both increase by 500, and what is the new equilibrium level of GDP?
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imply a lower standard of living in every of the three nations compared to the situation where they are united into a single new country.
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