An economy is described by the following equations:
Y = C + I + G
C = 0.75 YD + 20
T = 0.2 Y + 4
G = 20
I = 25
a) Calculate equilibrium output and equilibrium private and public saving.
b) With how much does equilibrium output falls, if government reduces government expenditure with 1 unit?
c) Explain the event in b) for the multiplier diagram (for example figure 14.4)