Suppose that initially equilibrium income was 200 units and that this was also the full-employment level of income. Assume that the consumption function is
C = 25 + 0.8YD
And that, from this initial equilibrium level, we now have a decline in investment of 8 units. What will be the new equilibrium level of income? What increase in government spending would be required to restore income to the initial level of 200? Alternatively, what reduction in tax collections would be sufficient to restore an income level of 200?