Consider a simple economy which is characterized by the following behavioral equations:

C = 100 + 2/3 YD

I = 120

G = 250

T = 200

Y = 800

Where C=Consumption spending; YD=disposable income; I=investment spending; G= government spending; and T=taxes paid minus government transfers received by consumers. Remember that YD = Y T).

Using the private saving function, determine the marginal propensity to save. Interpret your result.

(c) What is the investment multiplier in this economy? Give an economic interpretation.

(d) Now suppose that government spending is reduced by 50.

(i) (3 marks ) Compute private saving (Spr), public saving (Spb) and national saving (Sn)