Use the algebraic model in the Solved Problem to answer this question. Assume that autonomous consumption

(a) is $200 billion, current government spending

(G) is $500 billion, taxes (T) are $50 billion, and the MPC is 0.5.

a) Based on these values, what is the equilibrium income for this economy?

b) The economy is predicted to slide into a deep recession. It is estimated that real GDP will fall by $800 billion. Using the preceding values and your answer in (a), how much should government spending increase to make up this gap?

c) Suppose your estimate of the MPC is incorrect, and it is 0.8 instead of 0.5.

How does this affect your estimate of the increase in government spending needed to close the $800 billion shortfall in real GDP?

d) What are the inflationary implications of using an MPC of 0.8 in making your calculations if in fact the true MPC is 0.5?