My Question Is On ‘Part B’ Below I’M Wondering If I Picked The Right Numbers For Income Change And

Question

My question is on ‘part b’ below. I’m wondering if i picked the right numbers for income change and

multiplier. thanks!

1. Suppose the United States economy is represented by the following equations:

Z = C + I + G ; C = 500 + .5YD ; T = 600; I = 300;

YD = Y – T ; G = 2000

a. Given the above variables, calculate the equilibrium level of output.

Y = C+I+G

= 500 + .5(Y-600) + 300 + 2000

=2500 + .5Y

.5Y = 2500

Y = 5,000

Equilibrium level of output is 5,000

b. Now, assume that government spending decreases from 2000 to 1900. What is the new equilibrium level of output? How much does income change as a result of this event? What is the multiplier for this economy?

Y = C+I+G

= 500 + .5(Y-600) + 300 + 1900

=2400 + .5Y

.5Y = 2400

Y = 4,800

Equilibrium level of output is 4,800

Income changes by 200

Multiplier is .5

Macroeconomics