The total expenditure begins with these initial levels (in trillions of dollars): GDP = 10; autonomous consumption=1, Investment = 2; Government = 2; Net Exports = 0 and T=2. Assume MPC = 0.75

1. Find the equilibrium level of income.

2. Suddenly and as a result of a shock to consumer sentiments decreases to 0.7. find the change in the equilibrium level of income.

3. A sudden shock to so called business confidence leading to decrease in investment by 1. Find the change in the equilibrium level of income.

4. Suddenly there is an external shock and as a result investment goes down to 1. What is the change in GDP? Use the base model to answer this question.