Questions:
1) Consider the following open-economy:
C = 1000 + 0:8YD
I = 500
G = 400
T = 300
EX = 400
IM = 0:05YD
A. Compute the equilibrium output in this economy.
B. What is the marginal propensity to save in this economy? How about the marginalpropensity to import?
C. Compute the tax multiplier and the spending multiplier.
D. Does the balanced budget multiplier still equal one? Explain your answer algebraically,through an example, or conceptually using the multipliers in part C.
E. Suppose government spending increases by 200. What will the new equilibrium outputbe?
F. Consider the original parameters to the problem (given above part A.). Suppose invest-ment decreases by 100 and the government cuts taxes by 150. What is the new equilibriumoutput?