In the aggregate expenditure model, assume that the consumption function is given by C = 800 + 0.8 (Y - TP), that planned investment. I. equals 200, and that the government purchases, G, and taxes, TP, each equal 200. Assume that there is no import or export spending.
[a] Calculate the equilibrium level of income. Consider that government purchases, G, increases by 100 (all else constant)
[b] Given the new information, calculate the new equilibrium level of income.
[c] Given the new information, calculate the value of the multiplier. Show working. Now consider that the government decides to increase their purchases, G, by 100 and impose taxes, TP, also by 100 so that the government budget remains balanced.
[d] Given the new information. Calculate the new equilibrium level of income
[e] Does the equilibrium level of income remain unchanged?