1.Consider an economy described by the following equations:

Y = C + I_planned + G,

C = 200 + 0.5(Y - T),

I_planned = 300,

G = 400,

T = 400.

a.In this economy, compute the spending multiplier. (20 points)

b.Compute the equilibrium levels of real GDP and consumption. (20 points)

c.Consider a cut in tax rates that reduces net taxes from T = 400 to T = 240.

i.What is the effect of the tax cut on real GDP and consumption? (30 points)

ii.What is the effect of the tax cut on private saving, public saving, and national saving? (30 points)