If we consider a closed economy with no taxes, whose consumption function, investment level & government spending level are given by the following equations:
C = 5,000 + .80Y
I = 9,000
G = 2000
a. What is the equilibrium level of aggregate output for this economy?
b. What is the saving function for this economy?
c. Check the solution, as we did in class, by showing that at the equilibrium level of Y total spending exactly matches the level of output. At the equilibrium level of Y, what is the level of saving in the economy?
d. What is the Keynesian multiplier for this economy? If I increases by $900, what will be the new equilibrium level of Y?