a)Suppose the aggregate demand and supply schedules for a hypothetical economy are as shown below:

Amount of real

Amount of real domesticPrice leveldomestic output

output demanded, billions(price index)supplied, billions

$200300$800

400250800

600200600

800150400

1,000100200

i)Determine the equilibrium price and output level in this hypothetical economy.{2 marks}

ii)Evaluate whether the equilibrium price and output in i) above represent full employment level.{4 marks}

iii)Suppose demand increases by $400 billion at each price level, determine the new equilibrium price and output level.{3 marks}

b)Critically discuss the assumptions of Keynesian theory of employment and income determination.(6 marks)