The Keynesian Model: Illustrative Exercise 1 Consider the following Keynesian macroeconomy with government and foreign trade sectors (All figures are in billions of dollars.): C = 30 + 0.8YD Consumption I = 75 Gross private investment G = 51 Government purchases T = 0.1Y Net tax revenue X = 72 Exports IM = 0.1Y Imports (a) Derive the AE function and, using this function, calculate the equilibrium national income (i.e., GDP) in this economy. Plot this equilibrium on a Keynesian cross diagram. (b) Calculate the value of the Government-Purchases multiplier. (c) Suppose that the government decides to implement an expansionary fiscal policy by increasing its purchases from $51 Billion to $90 Billion. How much would the equilibrium national income (i.e., GDP) rise? What would be the new equilibrium GDP? (d) Illustrate the above policy effects on the Keynesian-cross diagram drawn in part (a). (h) Suppose the government again pursues an expansionary fiscal policy, but this time by reducing the net tax rate to 5 cents (instead of increasing the government's purchases). What would be the new equilibrium GDP? Illustrate this effect on the initial Keynesian cross drawn in part (a). (i) Suppose the government decides to implement a contractionary policy by reducing its purchases from $51 Billion to $31 Billion. What would be the new equilibrium GDP? Illustrate this effect on the initial Keynesian cross drawn in part (a)