QUESTION 3 (30 MARKS)

Consider a small closed economy that is described by the following information: =00; =1; =50; =40; =20 ; =.9

a) Calculate equilibrium national income. [10 marks]

b) Derive the specific saving equation that corresponds to the consumption equation. [5 marks]

c) At what level of income does savings equal zero? [5 marks)

d) If government spending increases by 150 which is funded by equal increase in tax, by how much will equilibrium income change?