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Assume the following Keynesian model:
AE = C + I + G + (X - M)
C = 750 + .75Yd
I = 800
G = 200
X = 400
M = 200 + .25Yd
T = 100
a. Find the aggregate expenditure function and equilibrium level of GDP.
b. Using a "Keynesian cross" (or 45-degree line) diagram, show graphically the equilibrium in part a).
c. What is the spending multiplier in this model? Tax multiplier?
d. Show that leakages = injections at equilibrium.
e. If government spending increases by $100, find the new equilibrium level of GDP. Show graphically.
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