Open-economy AE model with proportional taxes : Consider an AE model with trade in which AE=C +Ip +G + (EX-IM). Consider planned aggregate expenditure model with taxes proportional to income: so that total taxes paid are the tax rate multiplied by output, ty. Assume: planned investment, I = $2 trillion; government spending G = $4 trillion; the tax rate is t =0.20; the consumption function, C= $5 trillion + 0.80((1-t)Y); exports, EX = $2 trillion; imports, IM= 0.04Y .

1. 1. What is the equilibrium level of output?
   2. If GDP initially started at $20 trillion: What would happen to inventories and output?
   3. At the equilibrium level of output: what are total consumption and savings?
   4. If government spending increased to $5 trillion, what would be the new level of equilibrium output? What is the government spending multiplier
   5. Holding everything else constant (and assuming government spending is $4 trillion), if planned investment increased to $3 trillion what would be the new equilibrium level of output?