(The Algebra of Demand-Side Equilibrium) Suppose that the autonomous levels of consumption, investment, government purchases, and net exports are $500 billion, $300 billion, $100 billion, and $100 billion, respectively. Suppose further that the MPC is 0.85, that the marginal propensity to import is 0.05, and that income is taxed at a proportional rate of 0.25.
a. What is the level of real GDP demanded?
b. What is the size of the government deficit (or surplus) at this output level?
c. What is the size of net exports at the level of real GDP demanded?
d. What is the level of saving at this output?
e. What change in autonomous spending is required to change equilibrium real GDP demanded by $500 billion?