QUESTION 2 (25 MARKS) Let us assume a closed economy with government expenditure (Go), household expenditure (Co) are autonomous and investment as a function of interest rate. For simplicity, let us say interest rate decreases from R, to Ra b) a) Use a well labelled graph to show the relationship between investment and interest rate. [5 marks] Draw the Keynesian cross when interest rate increases from R, to R, while government expenditure (Go) and household expenditure (Co) remain constant (5 marks] TUTORIAL LETTER SEMESTER 2/2022 INTERMEDIATE MACROECONOMICS IMA6125 c) Use answers in part a) and b) to derive IS curve. [5 marks] d) Show the effect of expansionary fiscal policy on equilibrium national income and equilibrium interest rate. [10 marks) QUESTION 2 (25 MARKS) Let us assume a closed economy with government expenditure (Go), household expenditure (Co) are autonomous and investment as a function of interest rate. For simplicity, let us say interest rate decreases from R, to Ra b) a) Use a well labelled graph to show the relationship between investment and interest rate. [5 marks] Draw the Keynesian cross when interest rate increases from R, to R, while government expenditure (Go) and household expenditure (Co) remain constant (5 marks] TUTORIAL LETTER SEMESTER 2/2022 INTERMEDIATE MACROECONOMICS IMA6125 c) Use answers in part a) and b) to derive IS curve. [5 marks] d) Show the effect of expansionary fiscal policy on equilibrium national income and equilibrium interest rate. [10 marks)