.           Consider the following model of an economy with no internationaltrade, and in which the price level is fixed:
                                                                                C = 70 + (11/12)∙DI
                                                                                            I = 20
                                                                                           G = 30
                                                                               Taxes = (1/11)∙GDP
where C is consumption demand, DI is disposable income, I isplanned investment, G is government purchases, and all wholenumbers are in billions of dollars.
a.           Determine the equilibrium level of production (GDP) in this economy(show your work), and draw this equilibrium situation on agraph.
b.           Use the multiplier to determine the change in equilibrium GDP thatwould result from an exogenous 11 billion dollar increase ofgovernment purchases. Then determine and explain the effects ofthis change on consumption, saving, and the government deficit.
