Compute the equilibrium income derive any government

Question

1. Given that the money supply is 1400, consumption equation is represented as c= 120 + 0.7 (Y-T), investment equation is I=200-10r, where r is the real interest rate while Taxes (T) and Government expenditure are 200 and 400 respectively. The real money demand function is expressed as m/p=0.1y-100r (units in million)

(i) Solve for equilibrium real output and equilibrium interest rate

(ii) Assume that autonomous investment increases by 300,compute the investment multiplier and analyze the new impact on income and consumption.

2. An open macroeconomic model is represented parametrically as follows

Y=c+I_o+G_o+X₀-M, M=m_o+m₁y^d,C=c_o+c₁y^d, T=tY and Y^d=Y-T

(i) Compute the equilibrium income

(ii) Derive any government expenditure multiplier

(iii) Interpret the multiplier and explain its significance in policy context

3. Using appropriate model, illustrate the effect of an expansionary fiscal policy in an open economy operating in a free exchange rate regime.