Explain why the following statements is True, False, or Uncertain according to economic principles.Use diagrams where appropriate and show your calculations. It is the explanation that is important.

Suppose an economy is described by following aggregate expenditure (AE) model:C =40+0.75YDI =60

whereCis consumption (0.75 is the marginal propensity to consume)YDis disposable income, andIis investment spending.

(a)Derive an expression forAEas a function ofY. Calculate the equilibrium level ofYand illustrate in a diagram withAEon the vertical andYon the horizontal axis.

(b)Calculate the level of consumption. Express the components of aggregate expenditure (C, and I) as percentages of GDP (to one decimal place). Derive the saving function and solve for the equilibrium level of saving.

(c)What is the value of the multiplier in this model?

(d)Suppose there is an investment boom that leads to an increase in investment of 25. Calculate the new level of GDP. Illustrate in your diagram. Briefly explain why the old level of national income is new longer the equilibrium level.