1. Assume a given economy has an equilibrium GDP of $725 billion.

a. If government spending and taxes both increase by $25 billion, determine the new equilibrium GDP.

b. If both G and taxes increase by $25 billion, what impact will these two changes happening at the same time have on the budget? In other words, will these two changes cause a surplus, a deficit, or a balanced budget?

c. Solve for the numerical value of the balanced budget multiplier.