On the planet Omicron Persei 8, government spending is $1000, net taxes are $1200, and planned investment is $1400. Consumers spend according to the equation C = 100 + 0.8Yd, where Yd represents disposable income. Given this information, fill out the table below to determine which of the output levels represents a macroeconomic equilibrium then answer the questions that follow.
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a. Which level of output is a macroeconomic equilibrium?
b. Is the government budget balanced, in deficit, or in surplus, and by how much?
c. Find the marginal propensity to consume, and the marginal propensity to save.
d. Find the government spending multiplier. If the government wanted to increase the equilibrium level of income by $1,000, by how much would it have to increase government purchases?
e. Find the tax multiplier. If net taxes were lowered by $100, what affect would it have on the equilibrium level of income? Give a specific numerical answer.