3. (LO 1, 2) Suppose that GDP in Newland is $600 billion and government increases spending by $20 billion.

a) If the multiplier equals 4, what is the new level of GDP?

b) Suppose that as a result of the increase in GDP the price level in Newland also rises, causing the demand for money to increase by $60 billion. Show the new money demand, labelled MD2, in Figure 12.8A.

c) What will be the new interest rate?

d) Given Figure 12.8B showing the investment demand, by how much will investment spending change?
(Increase/decrease)
in investment of $

e) Given the same value of the multiplier, what will be the new level of GDP?
Intermediate (Problems 4–8)