The following table shows the consumption schedule for a closed economy (i.e. one that does not trade with other countries). Investment is currently 40bn.

National income (Y) (bn)

30

60

90

120

150

180

210

240

270

300

Consumption (C) (bn)

20

40

60

80

100

120

140

160

180

200

(a)Assuming that the government is currently spending 20bn, what is the equilibrium level of nationalincome?

(b)Assuming that at this level of national income the government is running a budget deficitof5bn,whatmustbethelevelofsavinginthiseconomy?

With an injections multiplier of 3

Assume that full employment is achieved at a national income of 240bn.

(c)Whatisthesizeofthedeflationarygap?

(d)How much would government expenditure have to be raised (assuming no change in tax rates) in order to close thisgap?

2. Givethreeproblemsofusingfiscalpolicytoachieveapreciselevelofnational income. (a)

(b)

(c)