Utopia is founded as a simple economy with no government or international trade. Utopia's economy is described by the following equations. Consumption: C=20+0.8Y Investment: 1=80 (a) Sketch the Aggregate Demand (AD) schedule and find the multiplier and the equilibrium level of income in Utopia. [7 marks] In due course Utopia forms a government, which enacts fiscal policy and opens the country to trade with neighbouring countries. The elected government introduces income tax t=0.25 and spends G=100, while signing a free trade agreement. The economy exports 30 , while the marginal propensity to import is 0.1. (b) Find the new multiplier and the equilibrium level of income. Add the new AD curve to your sketch in (a) and comment on how the introduction of a government sector and trade has impacted the Utopian economy. [10 marks] (c) Find the budget deficit and trade balance in equilibrium. [5 marks] d) A money market is formed in Utopia, and the central bank sets the interest rate. Discuss the effectiveness of monetary policy in Utopia as a means of stimulating the economy. Discuss with reference to the IS-LM framework. [8 marks]