Assume the following hypothetical economy:

C = 600 + 0.8YD
I = 200
G = 400
T = 300
X = 100
M = 0.2Y

where C is consumption, YD is disposable income, I is investment, G is government spending, T is taxes, X is exports, and M is imports.

a) What is the equilibrium level of income in this economy?

b) What is the value of the marginal propensity to consume (MPC) in this economy?

c) If the government increases spending by $100, what is the new equilibrium level of income?

d) If the government instead decreases taxes by $100, what is the new equilibrium level of income?

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