Consider an economy with no international trade, no government spending and no taxes, whose consumption function and investment function are given by the following equations: 1. a. b. C. d. e. 2. Now let's add Government Spending into the model. Government spending is a component of Aggregate Demand, just as Consumption Spending and Investment Spending. For now, let's not worry about taxes; we can assume the government borrows to pay for all of its spending. C=100,000+.92Y I = 40,000 a. What is the equilibrium level of aggregate output for this economy? Consider the economy described in the previous problem, but now suppose that Government spending is no longer zero but 50,000: b. Sketch the solution in a diagram using PowerPoint. What is the saving function for this economy? Check the solution, as we did in class, by showing that at the equilibrium level of Y total spending exactly matches the level of output. At the equilibrium level of Y, what is the level of saving in the economy? What is the multiplier for this economy? C. where G represents government spending. The equilibrium condition is, as always, that the value of the economy's output (Y) must be matched by aggregate demand, but now aggregate demand contains a third element, G. So the equilibrium condition from which we'll start is now: Y=C+I+ G. C = 100,000+ .92Y I = 40,000 G = 50,000 What is the equilibrium level of aggregate output for this economy? Check the solution, as we did in class, by showing that at the equilibrium level of Y total spending exactly matches the level of output. At the equilibrium level of Y, what is the level of saving in the economy? fe Suppose the full-employment level of Y is Y $2,400,000. How much would Government spending have to increase or decrease to bring the economy to Ye = $2,400,000? fe =