Consider the following economic model: C = 220 + 0.8Y d T = 75 + 0.25Y I0 = 160 G0 = 410 X0 = 50 IM = 0.1Y

(a) Solve for the equilibrium income (GDP) and calculate equilibrium consumption

(b) Calculate the expenditure multiplier

(c) Find the government budget balance BB = T G, given your Y in (a). Is the government running a surplus or deficit or neither?

(d) Suppose potential output is 1660. Determine the nature of the gap and calculate it (in percentage).

(e) Suppose government decides to eliminate the gap by changing the government expenditure. How much should the government change G0?