Consider the consumption function:

C = 100 + .8Yd

Where C represents consumption and Y represents income. To begin, assume there is no government and taxation, investment is given by I=50.

a. What is the equilibrium level of income in this case? What is the equilibrium level of Saving and consumption in this economy?

b. Suppose Government expenditure is rise by RS 3489, Investment by 250 and Net export is -30 and tax rate is imposed by 5% of Y. what will be the equilibrium level of income in this case? What will the equilibrium level of Saving and consumption in this economy?