Suppose that for a particular economy and period, investment was equal to 300, government expenditure was equal to 200, net taxes were fixed at 170, and consumption was given by consumption function:

C = 30 + 0.7YD

Where YD is disposable income and C is consumption.

A. What is the level of equilibrium income?

B. Suppose the investment declined by 100 units to a level of 200. What will be the new level of equilibrium income?

C. What is the value of the government expenditure multiplier and the tax multiplier? Explain carefully why the tax multiplier is negative and why it is smaller in absolute value than the government expenditure multiplier.

D. Suppose that government spending increased by 10 units and that this increase was financed by a 10 unit increase in taxes. Would equilibrium income change or remain the same as a result of these two policy actions? If equilibrium income changed, in which direction would it move, and by how much? Explain.