Suppose the United States economy is represented by the following equations:

Z= C + I + G C = 1000 + .9YDG = 2450 T = 500 I = 1000 YD= Y - T

a) Given the above variables, calculate the equilibrium level of output. Using the ZZ-Y graph (i.e., a graph that includes the ZZ line and 45-degree line with Z on the vertical axis, and Y on the horizontal axis), illustrate the equilibrium level of output for this economy on a diagram with demand and output curves.

b) What is the multiplier for this economy? Also explain what the multiplier is?

c) What is the value of the autonomous spending for this economy? Also explain what the autonomous spending is?

d) Now, assume that consumer confidence decreases causing a reduction in

autonomous consumption (c0) from1000to900. What is the new

equilibrium level of output? Show the equilibrium level of output for this

economy on a diagram with demand and output curves and compare this diagram with the one you have drawn for (a) and explain the difference.

e) How much does income change as a result of this event?

f) Briefly explain why this reduction in output is greater than (in absolute terms) the initial reduction in autonomous consumption. And explain the dynamic economic process behind this change.