Question 3

Use the information provided in the table below to answer (A) and (B) ONLY:

INCOME CONSUMPTION INVESTMENT

2000 1800 1000

3000 2600 1000

4000 3400 1000

5000 4200 1000

6000 5000 1000

7000 5800 1000

A. Calculate the equilibrium level of output. (2 marks)

B. If investment rises by 100, by how much would income change? (3 marks)

Assume the following equations for a macroeconomy: C = 100 + .9Yd , I = 50, T = 0.2Y , X=100, Im = 0.22Y and G = 250

C. Calculate the following:

i. equilibrium level of output

ii. net exports and

iii. total consumption. (12 marks)

D. State whether the economy has a budget surplus/deficit. Find its value. (3 marks) (Total 20 marks)