Problem [20 marks - marks for each part as shown] A1-5. Suppose an economy is described by following aggregate expenditure (AE) model: C = 10 + 0.8YD I = 30 where C is consumption (0.8 is the marginal propensity to consume) YD is disposable income, and I is investment spending. (a) Derive an expression for AE as a function of Y. Calculate the equilibrium level of Y and illustrate in a diagram with AE on the vertical and Y on the horizontal axis. [5] (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. [5] (c) What is the value of the multiplier in this model? [5] (d) Suppose as a result of post-pandemic interest rate increases and the subsequent decrease in new home construction, there is decrease in investment from 30 to 20. 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. [5]