Question: Assume Y = N$500m + 0,85Y; M= 0,3Y; I = N$900m; G = N$850m; X = N$1,840m and t = 0,21Y.
1 Calculate the total-spending function and equilibrium income. Illustrate this on a graph.
2 Indicate on the graph the effect of an N$300 million increase in investment spending and comment on the magnitude of change in the equilibrium income relative to the change in investment spending. Calculate the new equilibrium income.
3 Assume the marginal tax changes to t = 0,35Y. How will this change influence the total spending curve? Illustrate this on your graph.