Question: 1. Consumption function, C= 500+0.6 (Y-T); where, Y=5000 Tk and T=1000 Tk and G=500 Tk (a)Calculate disposable income, private, public, national savings and marginal propensity

1. Consumption function, C= 500+0.6 (Y-T); where, Y=5000 Tk and T=1000 Tk and G=500 Tk

(a)Calculate disposable income, private, public, national savings and marginal propensity to savings (MPS)?

(b)Investment function I (r) = 2000 - 40r, find out the equilibrium real interest rate?

(c)Government adopted a contractionary fiscal policy by increasing tax by 10%. Find out

the new equilibrium interest rate?

(d)Graphically show the results that you have received from in 1 (c) and 1 (d).

(e)Graphically show and explain how a contractionary fiscal policy in terms government spending may influence economy?

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