6. Consider the following national-income model.

Y = AE (1)

AE = C + I0 + G0 (2)

C = C0 + bY 0 < ? < 1 (3)

(a) Remaining in parametric form (do not sub in parameter values), build the equation for

total spending AE (also known as aggregate demand).

(b) Continuing in parametric form, find the RFE for equilibrium national income Y* (also

known as equilibrium national output).

(c) Using the parameter values ?# = 25, ? = 0.75, ?# = 50, and ?# = 25, find the total

spending equation.

(d) Solve for the numeric value of ?.

(e) Sketch a graph depicting this model. Label well.

(f) explain what will happen if this economy produces at an output level

greater than its equilibrium level.

(h) Find the multiplier for this economy.

(i) Use the multiplier to find the new equilibrium level of national income if ?# decreases

to 15.