Question
The following information is for X-Land a simple economy with two sectors only household and firms. C= 400 + 0.8Y, I = 500 where C
The following information is for X-Land a simple economy with two sectors only household and firms.
C= 400 + 0.8Y, I = 500 whereCis consumption,Yis equal to national income, andIis investment.
(a)Calculate the equilibrium level of national income for X-Land.[5mk]
What is the value of the multiplier in X-Land.[2mk]
(b) A government sector is introduced in X-Land as the country starts to become developed.
There is now government spending and taxation in X-LandG = 980,WhereGis
government spending on goods and services.
Calculate the new equilibrium level of national income for X-Land.[5mk]
If taxation = .25Y what the value of tax.
Is the government running a surplus or a deficit? Support with your working.[3mk]
(c) X-Land has transit to a full economic model to include a foreign sector with:
M =0.4Y and X = 1800whereMis imports andXis exports.
Calculate the new equilibrium level of national income for X-Land.[3mk]
(d) Show the final equilibrium level of income on the 450diagram.[5mk]
(e) If full employment national income is 7000 what kind of gap is the economy of X-land is operating with? Explain your answer. [5mk]
(f)The multiplier in X-Land is now only 1.25 compared to its lager value in part of 5 in part(a).How would you explain this.[7mk]
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