With fixed government expenditures of G = 150 and fixed taxes of of T= 200. Assume that that consumers behave as described in the following consumption function:
C= 150 + .75(Y-T)
Suppose further that investment spending is fixed at 100. Calculate the equilibrium level of GDP. Solve for equilibrium levels of Y, C, and S
Next assume taxes were reduced by 20 to a level of 180. Recalculate the equilibrium level of GDP using tax multiplier. solve for equilibrium levels of Y, C and S, after the tax cut.