The table below provides data on the spending on final goods, in billions of dollars, by consumers, businesses, and the government in equilibrium in a country with no international trade.

Aggregate Variables

Value (in billions of dollars) in the base year

Consumption spending

$900

Investment spending

$400

Government spending

$200

Transfer payments

$60

The marginal propensity to save is equal to0.4

and there are no exports or imports.

(a) Calculate the realGDP

in this country.Show your work.

(b) Calculate the marginal propensity to consume.Show your work.

(c) Suppose that the government increases spending from$200

billion to$300

billion.

(i) Calculate the maximum change in realGDP

.Show your work.

(ii) Given the change in realGDP

in part (c)(i), calculate the maximum level of the new equilibrium realGDP

.Show your work.

(d) Suppose that taxes decrease by$100

billion. Will the maximum change in realGDP

be larger than, smaller than, or equal to the change in realGDP

identified in part (c)(i) ? Explain.