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Question 2 The information on an open economy is as follows: C = 12000 + 0.9Y D I = 3600 T = 500 G = 2800 X = 1600 M = 450 Y* = 195,000 where C is consumption, Y, is disposable income, I is investment, T is lump sum income taxes, G is government spending, X is export, M is import and Y* is the potential output. (a) Determine the equilibrium income for the economy and explain what type of output gap occurs at the equilibrium income. Compute the output gap as a percentage of the potential output. (b) The objective of the government is to close the output gap in the economy. By how much should the government spending change to achieve this objective? By how much should the tax change to achieve this objective