If an economy with C = $5000 + 0.6Yd, I = $1000, G = $800, T = $1000, NX = $-200, where the dollar amounts are in millions of dollars, both government spending and taxes are raised by $200 million, what will be the change in equilibrium income (in millions) ?

A) $200

B) $100

C) $0

D) $-200

E) None of the above

Y = 15,500

Explanation:

If government spending increased by $200 million

Y = C + I + G + NX

Y = 5,000 + 0.6 (Y-1,000) + 1,000 + (800+200) - 200

Y = 5,000 + 0.6 (Y-1,000) + 1,000 + 1,000 - 200

Y = 5,000 + 0.6 (Y-1,000) + 1,800

Y = 5,000 + 0.6Y-600 + 1,800

Y = 6.200 + 0.6Y

Y - 0.6 Y = 6,200

0.4 Y = 6,200

Y = 6,200 / 0.4

Y = 15,500

Therefore, change in equilibrium income (in millions) is $500