Suppose you want to invest in an economy characterized by the following macroeconomic models:
Y =Co+c[Y(T+T(Y),r)] + I + I(Y,r) + Go (Expenditure Sector)
Mo Lo+L(Y,r)=- (Monetary sector) P
Your first task is to analyze the economy to be able to make informed decisions. If your decision is to be based on the various multipliers of the economy,
(a). Compute and interpret the investment multiplier for the economy.
(3marks)
(b). Establish both the tax and government expenditure multipliers for the economy.
(4marks)
(c). Determine the Balanced Budget Multiplier (BBM) for the economy and prove that it is >0.
d). What is the effect of price changes on the equilibrium income?.
(2marks)
e). Determine and explain the effect of increase in money supply on the interest rate in the economy. (2marks).