Consider a closed economy without government.

C = $3000 + 0.8Y, I = $500

ii) Using the information above, derive the saving function. Show your workings clearly.

iii)Determine the equilibrium level of income for this economy. Show your workings

clearly.

a) Based on your answer in part ii), what is the amount of total saving IF the equilibrium level of income is $ 16,000? Show your working.

b)Based on your answer in part iii), if the full employment level of income is at $16,500,

does it experience a deflationary gap or an inflationary gap? Using the information given, illustrate this with a Keynesian 45 diagram.

c)If new investment amount is $700 and given the equilibrium income in part iii), what

is the new equilibrium level of income? Use multiplier approach.