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I have the following information about an economy:

C = 50 + 0.8*Yd                                               Consumption Function

I = 100                                                           Investment Function

G = 130                                                           Government Spending

T = 0.1*Y                                                        Taxes

Yd = Y – T                                                        Disposable Income

1.    Show that if Y = AE then I + G = S + T where S is saving.

2.    What is the Government Budget position (G – T) when the economy is at the equilibrium level of GDP?

3.    If government increases spending from 130 to 186 what happens to equilibrium GDP? to the government budget balance?

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