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1) Given the following information, and assuming fixed prices: C = 25 + 0.9Yd I* = 125 T = 50 G=0 Yd = NP -

1) Given the following information, and assuming fixed prices: C = 25 + 0.9Yd I* = 125 T = 50 G=0 Yd = NP - T a) Solve for the equilibrium level of NP. b) What is the value of the multiplier? c) If Government spending increased by 25 what is the new equilibrium level of NP? d) If taxes were cut by 25 what would the new equilibrium level of NP be ? e) Why are the answers to parts c and d different ?

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