Consider an economy describe by the following equations:

Y =C+I+G+X (Income identity)

C= 300+.8Yd (Consumption

with investment I=$300, government spending G=$100, net exports

X= $100, and the tax rate t=.2

a. What is the level of income when spending balance occurs?

What is the multiplier?

b. Consider the same economy, except that investment depends positively on income, so that I=300+.2 Y. What is the level of income and multiplier now?

c. Returning to the investment equation in Part a, suppose that the tax rate is increased to .4. What happens to income and to the multiplier?