1. Basic Multiplier Model

Suppose the components of the Aggregate Expenditure as follows:

Y = C + I + G + NX

C = 400 + .8Yd = 200 + .8 (Y - T)

I = 300

G = 400

NX = 200

T = 600

a) Is the government budget balanced, in deficit or in surplus?

b) What is the value of the expenditures multiplier?

c) Calculate the equilibrium income.

d) If Government Spending (G) increases by 300, calculate the value of the new equilibrium income? How much did equilibrium income change as a result of the increase in G?