In the banana republic economy, autonomous consumption expenditure is B$400

billion investment is B$120 billion, and government expenditure is B$ 90 billion. The

marginal propensity to consume is 0.75, and the tax rate is a flat rate of 30% of every

B$ of income and autonomous net export is 10 billion. Assumed that the price is fixed

in this economy.

1.) Calculate total autonomous expenditure. (3 Marks)

2.) Calculate the multiplier. (5 Marks)

3.) If the government run a policy of fiscal discipline where the government expenditure

decrease to B$30, what is the change in the equilibrium expenditure? (4 marks)