!. In the Keynesian cross, assume that the consumption function is given by:

C=200+0.75(Y-T)

Planned investment is 100, government purchases and taxes are both 100.

a. What is the equilibrium level of income?

b. If government purchases increase to 125, what is the new equilibrium income?

c. What level of government purchases is needed to achieve an income of 1,600?

2. Business executives and policymakers are often concerned about the competitiveness of American industry (the ability of U.S. industries to sell their goods profitably in world markets).

a How would a change in the nominal exchange rate affect competitiveness in the short run when prices are sticky?

b. Suppose you wanted to make domestic industries more competitive but did not want to alter aggregate income. According to the Mundell-Fleming model, what combination of monetary and fiscal policies should you pursue?