Let us consider an economy characterized by the following equations:

= ₀+ 1(e )

= 0 + 1

=₀+_{1 D}

= 0 + 1

_D

Where₀ ,₁ ,₀ ,₁ ,₀ ,₁ ,₀ ,₁ are constant positive coefficients, , ,_D ,,,,are positive endogenous variables and e is a positive exogenous variable that stands for the expected production/output level. In this economy, production/output always adjusts to meet demand .

a)Using the above equations, write down the equations of the aggregate demand for goods: Z, private saving and government saving as functions of the relevant coefficients and the exogenous variable. How does the expected output/income level e affect Z, private saving and government saving? Explain. (10 Points)

b)Write down the equilibrium condition in the goods' market. Derive the equilibrium output/income level as a function of the relevant coefficients and e. (4 Points)

c)Which condition(s) guarantee the existence of a unique, positive and attainable equilibrium output/income level? (3 points)

Derive the equilibrium output/income level when e = . (3 points)