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(Solved) The economy is characterized by the following equations: C = 150 + 0.9*Y d Y d = Y-T I = 50 G = 80 T = 100 EX = 60 IM=50 What is equilibrium GDP?

Question: The economy is characterized by the following equations:

C = 150 + 0.9*Y d

Y d = Y-T

I = 50

G = 80

T = 100

EX = 60

IM=50

  1. What is equilibrium GDP? What happens to equilibrium GDP when G rises by 20? What is the (government spending) multiplier?
  2. Now suppose the economy looks like the above except that
    EX = 260
    IM = 50+0.1*Y
    Using the new values for EX and IM, what is equilibrium GDP?
  3. Using the new values for EX and IM, what happens to equilibrium GDP when G rises by 20? What is the (government spending) multiplier? Why does it change?

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