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Suppose you have the following information about a closed economy:
C = 50 + 0.80 (Y-T)
I = 200
G = 100
a) Find out the equilibrium level of income.
b) Suppose G increases to 125 what is the new equilibrium level of income?
c) What level of G is needed to achieve a target income of 200?
Diagramatic explanation of pareto optimality
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