For an economy with a tax rate of 10%, the following is given: C = 60 + 0.8YD

G = 400

I = 140

NX = 10 - 0.20Y

(I) If the economy produces $1 of extra output, how much of it is;
(a). spent on domestic goods?
(b). import expenditure?
(c). saved?
(II)
(a). Compute the multiplier.
(b). Calculate the equilibrium level of national income?
(c). What is the value of consumption expenditure in equilibrium?
(d). Assume all taxes are collected. Is the Government experiencing a budget deficit in
equilibrium? Why?
(e). Is the economy experiencing a trade deficit? Why?
(f) What is the value of national asset formation when GDP is in equilibrium?
(g) If government increases its spending by 25%, what would be the equilibrium level of
national income when all spending rounds are exhausted?
(h). Assume that these results referred to the economy your country. Briefly discuss the
implications of each of the results for your country’s economy.