Macroeconomics & Public Policy

Question 4 (12 points) In the context of the Keynesian cross model, a closed economy is characterized by the following behavioral equations: C = 300 + 0.80(Y - T) I = 400 G = 450 T = A + tY, with A = 200, and t = 0.20 [Note that, tax is not exogenously given in this case. Total tax depends on income, Y] a. Calculate the equilibrium level of national income (Y), disposable income (Y - T), consumption, private saving, public saving, and national saving. (5 points) b. Calculate the Government spending multiplier AY/A G. (4 points) c. Use the multiplier to determine the change in the government spending needed to achieve the equilibrium level of national income 4,000? (3 points)