8. Suppose that for a particular economy and period, investment was equal to 100, government expenditure was equal to 75, net tax were fixed at 100, and consumption (C) was given by the consumption function C = 25 + 0.8YD where YD is disposable income and Y is GDP.

a. What is the level of equilibrium income(Y)?

Ans:

a. What is value of the government expenditure multiplier (ΔY/ΔG)? Of the tax multiplier (ΔY/ΔT)?

Ans:

b. Suppose that investment decline by 40 units to a level of 60. What will be the new level of equilibrium income?

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