Assume that in 2015, the following prevails in the Republic of Nurd:

Y = $200 G = $0

C = $160 T = $0

S = $40

I = $30

Assume that households consume 80 percent of their income,

they save 20 percent of their income, MPC = 0.8, and S = 0.2Yd.

and MPS = 0.2. That is, C = 0.8Yd

a. Is the economy of Nurd in equilibrium? What is likely to happen in the coming months if the government takes no action? What is Nurd's equilibrium level of income?

Equilibrium with government requires that output = spending,

or that Y = C + I + G.

b. If $200 is the "full-employment" level of Y, what fiscal policy might the government follow if its goal is full employment?

C. Suppose Y = $200, C = $160, S = $40, and I = $40. Is Nurd's economy in equilibrium?

d. Starting with the situation in part C, suppose the government starts spending $30 each year with no taxation. If I remains constant, what will happen to the equilibrium level of Nurd's domestic product (Y)?