Q. a) Given the following information about an open economy with government, draw the AE function and find the equilibrium level of income.

Consumption: C = 160 + 0.8YdInvestment: I = 130Government Spending: G = 80Taxes = 20

Calculate the equilibrium level of income and illustrate graphically.

b) Continue with the information in part a. Suppose Taxes increases by $20 at every level of national income. How would the aggregate expenditures curve you drew be affected? Explain.Calculate the new equilibrium level of national income.

c) Continue with the information in part a. Now suppose the economy introduces trade and it has a trade deficit of $180. Find out the level of Savings needed for the economy to be in equilibrium.

d) Suppose the Central Bank is considering to increase Money Supply in the economy. State the instruments available to the Central Bank to control the level of Money Supply.

e) If the reserve ratio is 7%, then how much money does the Central Bank needs to inject in order to increase the total Money Supply in the economy by $4 million?