In the Keynesian model, suppose that the economy has the following values : C = 100 + 0.75*(Y-T) G = 300 I = 200 NX = 0 T = 200
a) Solve for the level of equilibrium output in this economy.
b) What is the multiplier on government spending? (I want a specific number here, not a definition)
c) Household savings is defined as disposable income minus consumption (Y – T – C). What is the level of household savings in this economy?
d) Suppose that households become nervous about the future of the economy and decide that they will consume less and save more money, so their new consumption function becomes C = 0.75*(Y-T). Solve for the new equilibrium level of output and calculate how much households end up saving. How has it changed from the level of savings in part c?
e) Ignoring the change in consumption from part d, how much would output increase if government spending increased by 100?
f) Ignoring the change in consumption from part d, how much would output increase if taxes were cut by 100?