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C = 40 + 0.75Y I = 140 - 10i G = 100 T = 80 Md = 0.2Y - 5i Ms = 85 (i

C = 40 + 0.75Y

I = 140 - 10i

G = 100

T = 80

Md = 0.2Y - 5i

Ms = 85

(i is % interest rate; other figures in Rs. Crores)

a) Find out the equilibrium income, Y and interest rate i.

b) Suppose the government increases its expenditure on education by Rs. 65 Crores?

What would be its effect on equilibrium income and rate of interest.

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