Given:

C = 250 + 0.8 Y

I = 150

G = 300

TR = 100

NX = 100

t =0.25

i) Find the equilibrium level of income.

ii) Suppose, because of current COVID-19 situation C falls to 50, MPS falls to .05, I falls to 10, G falls to 100 and NX falls to 10. How much TR should the government increase to have the same level of equilibrium income as in part i)?

iii) In determining the required change in TR in part ii), which multiplier did you use and why? (Hint: keep in mind the consumption tendency households may have under the COVID 19 situation in selecting the multiplier).

iv) Draw a graph to show the appropriate changes between part i) and part ii).