1. Consider an economy that is characterized by the following parameters and quantities (in monetary

units):

C = c0+c1YD,

I = 400,

G = 300,

T = 200,

c0 = 200,

c1 = 0.5.

(a) Starting from the goods-market equilibrium condition that Y =Z, where Y denotes aggregate

output and Z denotes aggregate demand, derive an analytical expression for equilibrium income,

Y (without using the given numbers).

(b) Now substitute the given numbers and derive the equilibrium level of income (= production),

Y, and the equilibrium level of disposable income, YD, in this economy.

(c) Compute the equilibrium level of private consumption, C, and the government surplus or deficit,

T G. How large are C, I, and G as a fraction of GDP, Y?