QUESTION 1 The following information describes an open economy. Answer all questions using the ISLM model C = 60 + 0.8Yd (C = consumption; Yd = disposable income = Y - T + TR) I = 100 - 5i (I = investment) i = 6 (i = interest rate) G = 76 (G = government spending) T = 15 (lump sum tax) TR = 60 (transfer payments) X = 70 (exports) M = 12 + 0.2Y (M = imports) (All figures are in billion US dollars) i. Derive the IS equation ii. Calculate equilibrium level of income iii. Calculate foreign trade multiplier iv. Calculate the balance budget multiplier v. At equilibrium whether the country enjoy a trade surplus or deficit? What is the size of trade surplus/deficit? vi. If the government's expansionary monetary policy reduces the interest rate to 4 percent; what would be the impact of this policy change on the economy? vii. The government's export promotion industrialization strategies results in double the size of exports and increases autonomous investment by 50%. What would be the impact of this policy changes on economic growth? (Consider the original interest rate of 6%) viii. In response to an economic recession; the government implements a stimulus package worth of 10 billion Dollars. How would this impact on the government budget? Explain