1. An economy has a consumption function C = 125 + 0.8 Yd. All income is subject to income tax at the rate of 0.25. If the value of private sector investment is 240 and government spending is 375. Find a balance of income and whether the government budget is in surplus or deficit. 2. In an economy modeled by the following equation C = 350 + 0.6 Y M = 50 + 0.1 Y I = 480 and X = 310 Find a balanced level of income. Check withdrawals (W) is it the same as injection (J), Is it S = I, what can be concluded from the trade balance? 3. The picture of an economy is described by the following equation system: C = 45 + 0.75Yd Consumption Yd= Y -T Disposable income T = 70 Lump sum tax G = 90 Government expenditure I = 350 -1000R Investment MD = 190 -2000R + 0.4 Y Money demand MS = 450 Money supply a. Find the equations for the IS Curve and the LM Curve. b. What is the balance value of Y and R. c. Is the government budget deficit or surplus d. Is W = J e. What is the impact of reducing the money supply to MS = 360 f. In the initial equilibrium condition, if the lump sum tax is replaced by income tax, what is the tax rate t required to generate tax of 70. Information : Y = Income Yd = Disposable Income AD = Aggregate demand C = Consumption expenditure I = Investment expenditure G = Government expenditure X = Export M = Import T = Total net direct taxation t = rate of income tax S = Saving W = withdrawals (S+T+M) J = Injection (I+G+X) R = Rate of interest MD = total demand for money MS = Money supply