1. Consider a simple Keynesian income-spending model of an economy described by the following equations
C = 210 + 0.75Yd
= 300
= 425
= 120
= 100
M = 0.15Y
= 250
(a) Calculate the equilibrium level of income.
(b) Sketch this equilibrium position using a two-dimensional graph.
(c) Suppose the government reduces public expenditure on goods and services by 25. Estimate the change in the equilibrium level of income. What is the new equilibrium level of income?