Assume the following Keynesian model: AE = C + I + G + (X - M) C = 500 + .9Yd I = 300 G = 100 X = 150 M = 50 + .1 Yd T = 100 a. Find the equilibrium level of GDP. b. Using a “Keynesian cross” (or 45-degree line) diagram, show graphically the equilibrium in part a). c. What is the spending multiplier in this model? Tax multiplier? d. Show that leakages are equal to injections at equilibrium. e. What is the government’s budget position at equilibrium? f. If government spending increases by $100, find the new equilibrium level of GDP. Show graphically.

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a To find the equilibrium level of GDP we need to set aggregate expenditure AE equal to GDP Y AE C I G X M AE 500 09Y 300 100 150 50 01Y AE 950 08Y No... View the full answer