Question 1: Consider the following model of the economy: C = 325 + 0.8YD - 10i ; I = 100 - 15i + 0.08Y ; G = 260 ; TR = 100 ; TA = 50 + 0.1Y and Yfe = 3500

(i). What is the equation for the IS curve in this model?

(ii) If the rate of interest is 5 percent (i.e., i = 5), what is the equation for the corresponding AD curve? What is the level of equilibrium income when i = 5?

(iii) What is the level of private saving when the economy is in equilibrium at i = 5? What is the level of government saving, when the economy is in this equilibrium? What is the level of national saving (NS) when the economy is in this equilibrium?

Question 2: Using IS_LM model. Explain the analysis for the following: Use diagram where necessary.

i) When in an economy, if the interest rate does not affect investment in the goods market, then analyses the impact on the economy? Show by diagram

ii) Impact of increase in money supply in two identical economies having differences in MPCs. i.e MPC1 > MPC2. Show what high MPC countries will experience.

iii). Rather than boosting, if there is drop in consumer confidence, although thereis increase in money supply.