2. • In the Keynesian cross model, assume that the consumptionfunction is given

2. • In the Keynesian cross model, assume that the consumption

function is given

by

C=120+0.8(Y−T).

Planned investment is 200; government purchases and taxes are both 400.

a. Graph planned expenditure as a function of income.

b. What is equilibrium income?

c. If government purchases increase to 420, what is the new equilibrium income?

What is the multiplier for government purchases?

d. What level of government purchases is needed to achieve an income of 2,400?

(Taxes remain at 400.)

e. What level of taxes is needed to achieve an income of 2,400? (Government

purchases remain at 400.)

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