Question: Use the algebraic formula (below) for GDP (solving for Y) to find equilibrium GDP when (data in $billions): C = $25 + 0.80Y I =

  1. Use the algebraic formula (below) for GDP (solving for Y) to find equilibrium GDP when (data in $billions):

C = $25 + 0.80Y

I = $40

G = $20

Xn = $-15

  1. Now using the data in Ques. #2, suppose that government spending (G) rises by $2 billion. What will be the new equilibrium level of GDP. Use the mpc (or mps) and the multiplier to calculate the new equilibrium GDP and show all the steps taken to find equilibrium GDP.

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