Answer all four questions below, showing calculations for all numeric answers. Number each question part clearly.

Q1. 25pts

1. Suppose the country of Freelandia has an MPC of .85 and a real GDP of $200 billion. If its investment spending decreases by $3 billion, what will be its new level of real GDP? (5pts)

1. The consumption schedule for an open economy is given as C= 40 + 0.7Y. Assume that planned investment Igand new exports Nxare independent of the Real GDP and constant, where Ig = 60 and Nx = 20. The equilibrium real output, Y is equal to aggregate expenditures. Calculate the equilibrium level of real GDP for this economy. What happens to the equilibrium Yif Ig changes to 30? What does the new outcome reveal about the size of the multiplier? (10pts)

1. Suppose the real GDP in an economy is currently $320 billion, C is $160 billion, I is $50 billion, Gis $32 billion, and Nx is $-20 billion. What can you say about the state of equilibrium in this economy? Will its real GDP rise, fall, or stay the same? Explain. (10pts)

\f270 - - - - 200 - - - - Aggregate consumption (C) 130 - - - - - 60 - - 450 - 100 200 300 Aggregate income (Y)7,000 AP 6,000 5,000 Real Aggregate Expenditures ($) AE 4,000 3,000 2.000 1,000 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Real Income ($)