Question 2 a) Citing suitable examples, distinguish between leakages and injections as used in circular flow of
Question:
Question 2
a) Citing suitable examples, distinguish between "leakages" and "injections" as used in
circular flow of national income [4 Marks]
b) The following statistics relate to National Income accounting figures for country XYZ
C = 200+0.8Yd where Yd = Disposable income
I = 300
Yd = Y-T T = Taxation
I = 200 C = Consumption
T = 100 I = Investment
Compute:
i) The change in income
ii) Disposable income after change in investment
iii) The investment multiplier caused by the change in investment and interpret it [6 Marks]
Question 3 [5 Marks]
a) Suppose you are given an induced investment function of the form: = + . Derive
an Investment Multiplier (show all your workings)
b) In a propensity to consume function (or a consumption function), explain why both APC
and MPC declines as income increases
Best Wishes....Dr. Nanjala