Q-4 (a) Two different consumption functions:

Consumption function I: C = 10 + 0.8Y

Consumption function II: C = 10 + 0.7Y.

In which case is the multiplier larger? Show your working as well.

(b)Assume a simple closed economy, with an MPC equal to 0.75. The government has passed a balanced budget amendment. The economy goes into a recession, so the government increases government spending by 40 million to try to expand the economy. Calculate the change in output (Y) from the increase in government spending (G).

(c) When Ali has no income, he spends $500. If his income increases to $2000, he spends $1900. What is his consumption function