Question: Suppose that we have a consumption function given asC = 20 + 0.75(Y T) Where T=tax, set at 40, and the remaining expenditure is

Suppose that we have a consumption function given asC = 20 + 0.75(Y – T) Where T=tax, set at 40, and the remaining expenditure is given by I=30, G=35, and (X-M)=5. Everything is measured in billions of dollars. The equilibrium value for real GDP is Y = 240

a) Calculate the multiplier?

b) Suppose G is decreased from 35 to 20, find the new equilibrium value for real GDP.

c) Suppose T is increased from 40 to 60 while G maintains at 35, find the new equilibrium value for real GDP.

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