Suppose the economy of a country is described by the following aggregate demand and supply equations:

Aggregate Demand: Y = 2000 - 100P
Aggregate Supply: Y = 500 + 200P

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

a) Find the equilibrium level of real GDP and the price level.

b) Suppose the government introduces an investment tax credit that increases investment spending by 100. How would this affect the equilibrium level of real GDP and the price level? Show your calculations.

c) Calculate the government spending multiplier and the tax multiplier for this economy.

Answer rating: 100% (QA)

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