Consider the following equations:

C = c0 + c1 YD

T = c0 + t1 Y

YD = Y - T

Assume G and I are both constant (exogenous). Assume t1 is between 0 and 1. It is the marginal tax rate.

a) Solve for equilibrium output (using algebra).

b) What is the formula for the multiplier in this case?

c) Does this economy respond more to a potential increase in G when t1 = 0 or when it is positive? Show and explain.

d) Is this model an example of an automatic stabilizer? Explain.