3. Consider an economy characterized by the following equations -(numbers in billions). (This lump-sum tax version is done in detail in TEXT Chapter 10 Appendix)

C = 2200 + .8(Yd) (Yd = Y- T ) T = 500

I = 600 G = 600

a) What is equilibrium income in this economy?

b) What is the multiplier?

c). Is the Government running a deficit, a surplus, or is the budget balanced?

d)Now, let Government spending drop by 100. What is the new equilibrium income? Now, what is the government deficit or surplus?