Expert economists in the economy of Bongo estimate the following:

Assume that Bongoliers consume 80 percent of their disposable incomes and save 20 percent.

a. You are asked by the business editor of the Bongo Tribune to predict the events of the next few months. By using the data given, make a forecast. (Assume that investment is constant.)

b. If no changes were made, at what level of GDP (Y) would the economy of Bongo settle?

c. Some local conservatives blame Bongo’s problems on the size of the government sector. They suggest cutting government purchases by 25 billion Bongos. What effect would such cuts have on the economy? (Be specific.)

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Real output/income Government purchases Total net taxes Investment spending (planned) Billion Bongos 1,200 300 300 200