Question 2

a) Citing suitable examples, distinguish between "leakages" and "injections" as used in

circular flow of national income [4 Marks]

b) The following statistics relate to National Income accounting figures for country XYZ

C = 200+0.8Yd where Yd = Disposable income

I = 300

Yd = Y-T T = Taxation

I = 200 C = Consumption

T = 100 I = Investment

Compute:

i) The change in income

ii) Disposable income after change in investment

iii) The investment multiplier caused by the change in investment and interpret it [6 Marks]

Question 3 [5 Marks]

a) Suppose you are given an induced investment function of the form: = + . Derive

an Investment Multiplier (show all your workings)

b) In a propensity to consume function (or a consumption function), explain why both APC

and MPC declines as income increases

Best Wishes....Dr. Nanjala