Question 1:

Use the following information to answer the questions relating to the economy of Islamabad:

C = 150 + 0.85Y

I = 350

Use the expenditure method to calculate the country's equilibrium income (Ye). (3)

Illustrate your answer in Q.3.1.1 graphically. (3)

Calculate the marginal propensity to save (MPS). (3)

Calculate the multiplier. (3)

Graphically demonstrate an increase in the national income should Investment spending increase by 50.