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

a) What is equilibrium GDP? What happens to equilibrium GDP when G rises by 20? What is the (government spending) multiplier?

b) 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?

c) 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?