Question 1

The following information relates to a small closed economy:

Tax = $50 ,

Government Spending = $150

Investment=$100

The autonomous consumption is 10 and MPC is 0.5.

a.Write the consumption function

b.Explain the properties of the consumption function

c.Using the above information, calculate the equilibrium

i.Income

d.Consumption

e.Derive the saving function and calculate the level of savings

f.Suppose the government asks consumers to save more. The consumers abide and reduce the automous consumption by $5. Calculate the equilibrium

I.income,

II.consumption and

III.saving?

IV.Explain the intuition.

Question 2

According to Statistics Mauritius, Consumer Prices has increased from 3.5% year-on-year in September of 2017 slowing from a 4.6% rise in the previous month. Define inflation and outline the steps involved in the calculation with suitable examples