1) assume an economy with a household sector and business sector. let c = 300 + 0.9qd and i = 1700.

a) solve for as, sm, q, c and s.

2) now add a foreign sector where x =800 and im = 300 + 0.1q. solve for as, sm, q, c, s, im and nx.

3) now add a public sector where g = 2200, tx = 400 + (1/3)q and tr = 2400. solve for as, sm, q, tx, qd, c, s, im, nx, ge and bd.

4) suppose government expenditures are currently 3000 and tax revenues are currently 2000. assume tax revues increase annually by 75 + (2/3)(increase in ge - decrease in i). assume i decreases by 1 every time g increases by 1 when the deficit is 1000 or higher and i decreases by 1 every time g increases by 2 if the deficit is less than 1000 but greater than 500.

a) what is the current deficit?

b) what would the deficit be for each of the next 5 years if we held ge constant at 3000?

c) what would the deficit be for each of the next 5 tears if we increased g by 60 each year?

d) repeat c assuming we increase spending by 120 each year.

e) repeat c assuming we increase spending by 180 each year.