7. An economy has the following characteristics:

Y = National income Taxes = T = 0.25Y C = Consumption = 400 + 0.85(Y – T)

I = 300 G = 200 X = 500 M = 0.1(Y – T)

Find the equilibrium for this economy. If potential GDP is 3,500, then what change in government spending is needed to achieve this level? Do this problem two ways. First, plug 3,500 into the equations and solve for G. Second, calculate the multiplier and figure it out that way.