Suppose we have an economy described by the following functions:

C = 50 + .8YD, I=70, G=200, TR=100, t=0.2

1. Calculate the equilibrium level of income and the multiplier in this model.
2. Calculate also the budget surplus, BS
3. Suppose that t increases to .25. What is the new equilibrium income? The new multiplier?
4. Calculate the change in the budget surplus. Would you expect the change in the surplus to be more or less if c .9 rather than .8?
5. Can you explain why the multiplier is 1 when t =1?