Question: An economy has the following consumption function: C = 200 + 0.8DI The government budget is balanced, with government purchases and taxes both fixed at

An economy has the following consumption function:

C = 200 + 0.8DI

The government budget is balanced, with government purchases and taxes both fixed at $1,000. Net exports are $100. Investment is $600. Find equilibrium GDP.

What is the multiplier for this economy? If G rises by $100, what happens to Y? What happens to Y if both G and T rise by $100 at the same time?

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