A typical rual economy has the the following data. Autonomous consumption (a) =400

Induced consumption (b) =0.75 of yd

Aautonomous taxation (t0) =400

Iinduced taxation (t1) =0.2 of income

Iinvestment expenditure (I) =400

Ggovernment expenditure (G0) =500

a. Find the economy's aggregate expenditure function?.

If aggregate expenditure (E)=income (y)

b. Calculate the economy's equilibrium income.

c. What is the value of investment/government multiplier?

d. If investment is increased by 70 units, what impact will this have on national income.

e. What type of budget policy is the government pursuing?.

f. What is the new level of national income?.

g. Calculate the new multiplier and compare it with the ealier one obtained in (c) above. Explain the difference if any.

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