a)What is the effect on the aggregate demand curve from an increase in the price level? In particular, does the aggregate demand curve shift leftward or rightward? Explain.

(6 marks)

b)How is it possible for consumption expenditure to be positive even when disposable income is zero? Briefly explain(4 marks)

c)What is the essential difference or differences between the recession and inflationary gaps?(( 2 marks)

d)Explain how expansionary fiscal policy causes private investments to fall. (6 marks)

e)Suppose an economy is characterized by the following model:

C = 275 + 0.5Yd, I = 500 - 2000R, G = 150, X = 300, IM = 150, T = 150, R = 10%

Based on the information provided above, answer questions i) to iv) below:

i)Calculate the value of equilibrium output level(6 marks)

ii)Calculate value of the multiplier(3 marks)

iii)How will a 100% increase in government spending affect equilibrium output? (3 marks)