Suppose an imaginary economy is represented by the following equations:
GDP= C + I
C= $100 + 0.8 Y D
I = I Planned + I Unplanned
Iplanned = $200
AEplanned = C+IPlanned
(1) Calculate the income- expenditure equilibrium level GDP. Show your work.
(2) Suppose the level of planned investment spending (Iplanned) drops by $50 . What will the new equilibrium GDP be? Show your work
(3) With Iplanned back at the original level $200, suppose that autonomous consumption spending decreases from $100 to $60. What will the new equilibrium be? Show your work.
(4) Calculate the value of the multiplier.