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1. In the Keynesian cross, assume that the consumption function is given by: C=$85+0.7(Y−T). Planned investment...

1. In the Keynesian cross, assume that the consumption function is given by: C=$85+0.7(Y−T). Planned investment is $200, government purchases and taxes are both $50.

a. Graph planned expenditure as a fraction of income.

b. What is the equilibrium level of income?

c. If government purchases increase to $65, what is the new equilibrium income?

d. What level of government purchases is needed to achieve an income of 1160? Assume taxes remain at $50.

e. What level of taxes is needed to achieve an income of $1160? Assume government purchases remain at $50.

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