2.

Given the following information.

C = 600 + 0.8Yd , Yd = Y T, Tg = 100, I= 200, R = 50, G = 350,

X = 250 and M = 200 + 0.1Y.

a.

Calculate the equilibrium level of income (Ye).

b.

Show the equilibrium level of income by using diagrams of both aggregate

expenditure-income (AE-Y) approach and injection-leakage approach,

c.

How much investment should be increased if the government wants to

increase the national income by 2000?

d.

How much tax has to be reduced so that the national income will increase by

2000?

e.

Based on the answer in Question 2(a), if the government undertakes

expansionary fiscal policy by increasing government expenditure by 400,

calculate the new equilibrium level of income.

f.

After being at the equilibrium level of income in Question 2(e) above, if the

government reduces the tax by 400, what is the new equilibrium level of

income?

g.

Starting with the original information above, if the government runs a

balanced budget i.e. increases the government expenditure and tax by the

same amount (G = T = 400 which means changes), calculate the new

equilibrium level of income. Draw a diagram to show this situation