In an economy with no export and no import, autonomous consumption is $1 trillion,the marginal propensity to consume is 0.8, investment is $5 trillion and governmentexpenditure on goods and services is $4 trillion. Taxes are $4 trillion and do not vary

with real GDP.

If real GDP is $30 trillion, calculate disposable income and consumption expenditure. ( 5 marks)

Question 2

A. Distinguish between 'absolute advantage' and 'comparative advantage'. (4 marks)

B. In 2008, the Caribbean region signed an Economic Partnership Agreement with the

European Union. Some economists objected on the grounds that free trade would not be

good for the region.

Outline THREE (3) arguments in favour of protection, that these economists could have

used to support their position.(9 marks)

C. Those countries in favour of the agreement with the European Union argued that the

region could receive benefits from free trade with Europe. Outline TWO (2) of these

potential benefits.(6 marks)

D. Identify TWO (2) main accounts of the balance of payments and state THREE (3) items

you expect to be recorded in each. (6 marks)