Question: 7. Consumption C = 200 + .75 (Y T) where Y = aggregate output and T = taxes. Investment (1) = 100, government spending (G)

7. Consumption C = 200 + .75 (Y T) where Y = aggregate output and T = taxes. Investment (1) = 100, government spending (G) = 100 and taxes = 100. Draw the Keynesian cross for this situation. What is the equilibrium level of income Y? If G increases to 125, what is the new equilibrium level of Y? What level of G is needed to have Y = Potential GDP =1500? [15 points]

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