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Question 1: Let an economy be represented by the simple Keynesian framework as under: Goods Market Money Market C = Cu +C(Y 4"), (c=0.85) (M l P)\" = k(Y)+I(r), (k=0.2, 1': - 2.5) 1=Io+br,G=Go, T=1Y (b=-l.25,t=0.10) M'=Mo I + G = S + T (Equilibrium Condition) M\" = M \" (Equilibrium Condition) Page 1 of 1 INTERNATIONAL ISLAMIC UNIVERSITY ISLAMABAD International Institute of Islamic Economics (IIIE) mepartmmt qf Economics The current GDP level is 10 billion, Govt. Expenditure is 1.2 billion and Money supply is 2 billion. The government intends to increase investment in the public sector this year so that GDP should rise by 10% on the completion of the multiplier cycle. It is desired that the private sector should not suffer. You have to explore the policy options and to estimate the requisite increase in public spending and monetary expansion to achieve the said objective. (20)