Assume an economy in which C=750+0.64 Y; I=210; G=320; X=123; Q=0.23Y

1. Drive the S equation (0.5 mark)
2. Drive the AE equation (0.5 mark)
3. Calculate Y^e (0.5 mark)
4. What are MPS, MPC, MPQ and MPW? (1 mark)
5. What is the size of the multiplier? (0.5 mark)
6. If potential GDP (Y^P) or full employment GDP (Y^f) is equal to $2500, what is the GDP gap? (0.5 mark)
7. What kind of a GDP gap is this (recessionary/inflationary)? (0.5 mark)
8. How much G should increase/decrease in order to close the gap? (1 mark)

• Show your work clearly
• Hint: It usually helps if you draw the graph for yourself. Graphs always make the analysis easier.I don't need to see your graph (it has no marks in this assignment). I mark your calculations and your final answers.