Consider a hypothetical economy where: C(Yd)=30+2/3×(Y −T) I(r) = 52 − 0.2 × r G = 160 t = 0.4 (represents 40%) - What a

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Consider a hypothetical economy where: C(Yd)=30+2/3×(Y −T) I(r)
= 52 − 0.2 × r G = 160 t = 0.4 (represents 40%)
- What are the equilibrium values of the interest rate, r, and
investment, I? (Hint: use the MPR or IS, and I(r) equations.)
- Suppose that the level of Government expenditure increases to
G = 180. What is the equi- librium value of aggregate income, Y ?
(Note: you will no longer get a round number for Y.)
- What are the new equilibrium values of the interest rate, r,
and investment, I?
- Discuss why how the increase in G impacts Y , r and I in the
context of the ideas of fiscal stimulus, spending multipliers, and
crowding-out.