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Question 2: The Keynesian cross model, a numerical exercise Consider the following hypothetical economy: 6 = 140 + 0.6(Y 1') f=150 6:200 T=150 All variables are in units of constant dollars per year (5). (a) What is the equilibrium level of GDP (Y)? [Make sure that you start from the equibn'um condition, and show your work]. (b) Using your answer to (a), solve for the following variables in equilibrium: i. Disposable income (YD). ii. Consumption spending (C). iii. Aggregate demand (Z). Show that the level of aggregate demand is equal to the equilibrium level of GDP. (c) Say that the government increases government spending by 100. i. What is the new level of GDP? How much does GDP increase? ii. Is this increase in GDP more or less than the initial increase in government spending? (d) Now assume that investment is described by I = 100 + 031'. (Return government spending to the original level of 200). i. What is the equilibrium level of GDP (Y)? ii. Say that government spending increases by 100. How much does GDP increase? iii. Compare your answers to (c) and (d): Is scal policy more or less effective in an economy where investment also responds to GDP