Assume an goods and services market of an economy is characterized by the following

equations:

C = 0.8 (Y - T)

I = 800 -20r

Y = C + I + G

T = 1000

G = 1000

Consider for the moment the Keynesian Cross model. What will happen to the

GDP if G increases by 200? What is the multiplier?

Keep considering the Keynesian Cross model. What will happen to the GDP if T

increases by 200? What if both G and T increase by 200?

Derive a formula for the IS curve, showing Y as a function of r .