Question

Based on the following information provided, answer the following questions:

Consumption function: C = 10 + 0.8Yd

Government expenditure: G = 40

Investment function: I = 5

Tax function: T = 0.14Y

Export: EX = 5

Import: IM = 0.14Y

1. Calculate the equilibrium national income using
   1. Expenditure-output approach                                          
   2. Leakage-injection approach   
2. Sketch separate diagrams indicating the equilibrium income for (i) and (ii).            
3. Calculate the expenditure multiplier. What does the computed value imply?            
4. What is the government budget at the equilibrium income?                                    
5. What is the problem faced by the economy if full employment income is 120? Draw and label on graph (appropriate values must be calculated).                                                  

What policy (ies) would you recommend for solving the macroeconomic problem in part (e)?

Answer 1