Submit your answer on paper in class.

Consider the following macroeconomic model

$($the

$$numbers$,$ with the exception of the$$ MPC$,$ represent billions of

dollars$)$:

C$=$

$1$ comma $5001,500$

$+$

$0\mathrm{.}750\mathrm{.}75$Y

$$

Consumption function

I$=1$ comma $5001,500$

Planned investment function

G$=1$ comma $2501,250$

Government spending function

NX$=500500$

Net export function

$1.$ Find out the multiplier.

$2.$ Calculate the equilibrium output.

$3.$ If the government adopts an expansionary fiscal policy by doubling$$ spending, calculate the new equilibrium ouput.

$4.$ Use your solution from $2$ and $3$ to calculate the change in aggregate output in percentage.

$5.$ Now, instead of increasing$$ spending, the government adopts a contractionary fiscal policy by imposing a lumpsum tax of $200.$ Compute the equilibrium GDP under the new policy regime.