2. The Role of the Government (a) Suppose; that in the private closed economy consumption function is C = $120 + 0.75Yd and investment rnction is I = f = $80. What is: (i) the value of autonomous spending; (ii) the value of spending multiplier; (iii) the value of the equilibrium output. Show the situation on the graphs in (AE Y), and (1 Sage Y) spaces. (Instruction: Draw the graphs of the large size and with the distance between the lines sufcient to show all the changes in the position and/or the slope of the lines. The graphs must be drawn under the other). (b) Now government spending of $60 is added. Find: (i) the new value of autonomous spending; (ii) the new value of spending multiplier; (iii) the new value of the equilibrium output; and compare with those in point (a). How is government spending nanced in the absence of taxes? Show the changes on your graphs from point (a). (c) To nance its spending, government imposes lumpsum taxes of $60. Find: (i) the new value of autonomous spending; (ii) the value of the spending multiplier; (iii) the new level of equilibrium output; (iv) the value of the tax multiplier; and compare with those in point (b). Show the changes on your graphs from point (b). What does this situation mean for the government budget? for the level of eguilibrium output compared to those om point (a)? What is the value of the budget multiplier? ((1) Suppose government begins to pay $20 as transfers. Find: (i) the new value of autonomous spending; (ii) the value of the spending multiplier; (iii) the new level of equilibrium ouQut; (iv) the value of the transfer multiplier; and compare with those in point (c). What happens to government budget? How government expenditures are nanced in this case? Redraw the graphs from point (c) and show the changes on both graphs (e) Suppose that in the situation, described in point (d), government instead of the lump-sum tax, imposes a proportional income tax equal to 20%. Find: (i) the new value of autonomous spending; (ii) the new value of the spending multiplier; (iii) the new level of equilibrium output; (iv) the new value of the transfer multiplier and compare with those in point ((1). Will it now be a budget surplus or budget decit? What must be the equilibrium level of output to keep the balanced budget? Redraw the graphs om point (d) and show the changes on both graphs