a) Consider a tiny economy of Country A which currently has a total output of $400 million, investment of $50 million and a multiplier of 2. The equilibrium equation for Fraser Island is represented by the following:

Y=1C11(C0+I)

i. What is the aggregate demand and autonomous consumption for Country A's economy? (show your calculations)

b) The rising cost of living has caused consumer confidence in Country A to fall. As a result, the government has decided to intervene before aggregate demand is affected. The government has decided to invest $100 million in Country A's infrastructure.

i. What impact does this new investment have on Country A's GDP?

ii. Using a properly labelled diagram, show the changes that the new investment has on Country A's economy.

iii. Briefly explain the first three rounds of the adjustment process from above.