Problem 1: Based on the Keynesian model and the formulas indicated below, compute the equilibrium level of GDP and explain how it changes if investment increases/decreases by 10% and why. What happens to the government budget balance (G-T) and why? Explain and indicate the formulas you are using.
Y=C+I+G
C=100+0.8(Y-T)
I=400
G=150
T=0.2Y
Problem 2: Based on the Keynesian model and the formulas indicated below, compute the equilibrium level of GDP and explain how it changes if investment increases/decreases by 10% and why. How will the government budget change and why? Explain and indicate the formulas you are using.
Y=C+I+G
C=150+0.75(Y-T)
I=450
G=120
T=0.25Y