Question 1

a)Assume consumption is represented by the following: C = 400 + 0.75Y. Also assume that planned investment (I) equals 250 , Government (G) = 500, Export( X) = 150 and Imports( M) =200- 0.20Y

i.Given the information, calculate the equilibrium level of income. Showing working( 5 marks)

ii.Given the information, calculate the level of consumption and saving that occurs at the equilibrium level of income.( 4 marks)

iii.Now suppose that individuals decide to increase their saving so that autonomous consumption falls by 100. Calculate the new equilibrium level of income, the new level of consumption, and the new level of saving.(6 marks)

b)Explain how the advent of Covid 19 in Jamaica would impact on the Multiplier effect to increase or decrease National Income. (8 marks)

c)Explain how the accelerator effect works to increase and decrease GDP(7 marks)