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40. Consider a closed economy described by the following equations: C = 50 + 0.80Y 1 = 50 G = 40 T = ty = 0.25Y R = 0. (i) Find equilibrium disposable income and saving. (ii) What is the budget surplus at equilibrium? (iii) What will be the budget surplus if the government introduces transfer payments, R = 50? (iv) What is the effect on disposable income, budget surplus and saving of an increase in MPC from 0.8 to 0.9? (v) What is the effect of an increase in the tax rate from 0.25 to 0.40 on equilibrium income, saving and budget surplus? (vi) From these results what can you say about the general impact on equilibrium income, savings multiplier and budget surplus of an increase in: (a) the tax rate (b) MPC and transfer payments? Can you comment on why income tax and transfer payments such as unemployment benefits are called automatic stabilisers? 11. Suppose in the model of Exercise 10, R = 50 and full employment income is 500 () Is there any unemployment at equilibrium output? (ii) What is the structural budget deficit? (iii) What would be the structural budget deficit if investment were to increase from 50 to 100? Is there any unemployment now? ") What policies could the government take to reduce the effect of an increase in investment demand