The following information is for X-Land a simple economy with two sectors only household and firms.

C= 400 + 0.8Y

I = 500whereCis 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-Land

G = 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]

[TOTAL 35MK]