Question one,

Suppose you are given the following model:

C = 300 + 0.75 Yd

I = 100

G = 200

T = 200

1- Calculate the equilibrium output (income) using:

- AE approach.
- Saving-Investment approach.
2. Show graphically your answers.
3. Calculate the change in equilibrium ΔY resulted from increasing
government expenditure by 100. What will be the new
equilibrium of output?
4. Calculate the change in equilibrium of output resulted from
increasing taxes by 100. what will be the new equilibrium of
output?
5. Calculate the change in equilibrium of output resulted from
increasing both government expenditure & taxes by 100 each.
6. Which fiscal policy has the greatest effect on output? Why?
Question two,
Investment is 600, the marginal propensity to save is 0.1,

government expenditure = 300, autonomous level of

consumption is 470, and taxes are 300.

1. Determine the equilibrium level of output.

2. Calculate the change in equilibrium ΔY resulted from

increasing government expenditure by 100. what will be the

new equilibrium of Y?

3. Calculate the change in equilibrium Y resulted from

increasing taxes by 100. what will be the new equilibrium Y?

4. Calculate the change in equilibrium Y resulted from

increasing both government expenditure & taxes by 100

each.