Assume the following Keynesian model for the economy of Boogerland:
Y = C + I + G + (X - M)
C = 200 + .75Y
I = 400
G = 200
(X - M) = 200
T = 0
a. Find the equilibrium level of GDP.
b. Using a "Keynesian cross" (or 45-degree line) diagram, show graphically the equilibrium in part a).
c. What is the spending multiplier in this model?
d. What is the level of consumption at equilibrium? Saving?
e. If government spending increases by $100, find the new equilibrium level of GDP. Show graphically.
f. Starting back in a), if the consumption function is given by C = 200 + Y instead, what is the new equilibrium level of GDP? Show graphically.