Question: Assume a Keynesian macro model: AE = C + I + G + NX C = 100 + 0.75Yd I = 300 G = 285

Assume a Keynesian macro model: AE = C + I + G + NX C = 100 + 0.75Yd I = 300 G = 285 NT = 100 X = 40 M = 50

a) Find the equilibrium level of income. Show the equilibrium on a graph.

b) Calculate the tax multiplier and find the effect on equilibrium level of income of a change in the level of net taxes from 100 to 50 by using tax multiplier.

c) If government wants to reach a 100 $ higher aggregate output level with no change in the budget deficit, how much should the government spending and/or net taxes increase or decrease?

d) What will be the effect of an expansionary fiscal policy of a change in the government spending by 25? Find by using multiplier. Find the new equilibrium level of output.

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