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Consider an economy in the short-run described by the following equations: Z = C + I...

Consider an economy in the short-run described by the following equations:

Z = C + I + G

G = 500

T = 500

C = 250 + 0.75(Y – T)

I = 625

a. What is the equilibrium condition that allows us to solve for Y. Find Y. Compute private saving, public saving and total/national saving at this level of Y.

b. What is the value of the marginal propensity to consume? What is the value of the expenditure

multiplier?

c. Now suppose that G rises to 600. Find the new equilibrium value of Y.

d. Compute private saving, public saving and total/national saving at the new equilibrium.

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