The people in Stataland spend 80% of their income and need basic consumption of 4000 in order to survive. Investment is I=2000+0.15Y. There are neither government expenditures nor taxes, hence no budget deficit

1.Set-up this very simple model (Y=C+I) and find the Equilibrium GDP

2.What is the consumption function? What is the consumption level at equilibrium?

If the government taxes people 3000 and spends all the money to keep the budget balanced, what happens to the equilibrium output of the economy? Why? Explain by using the multipliers

3.If Full Employment GDP is 140,000, how much should the government change taxes T to achieve it? What Happens to the budget deficit in this case?

4.If the government were instead to change Government expenditures G instead of taxes to reach F.E. GDP, how much should G change and what happens to the Budget deficit in this case?

5.Which case here is better for the budget deficit and why?