Suppose the aggregate demand and aggregate supply curves in an economy are given as follows:

AD: Y = 2000 - 20P
AS: Y = 1000 + 50P

where Y is real GDP and P is the price level.

a) Find the equilibrium price level and real GDP.

b) Suppose the government increases spending by $100 million. What will be the new equilibrium price level and real GDP? Show the calculations.

c) Calculate the multiplier effect of the government spending increase.

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