ECO403 Macroeconomics Assignment No.2 Solution Fall Semester 2013

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Solution:
C = 100 +0.75Y
where Y means Income and income bhi hamen di gae hai which is 15000 of after investment
so Y (income) = 15000 equation mein put ker dein
C = 100+ 0.75 (15000)
C = 100 + 11250 = 11350

B. Government spending multiplier before and after the investment

Solution
Government Spending Multiplier = 1/MPS
Before = 3.33
After = 4

C. Tax multiplier before and after the investment
Solution
Tax multiplier = - MPC/MPS
Before = -2.33
After = -3


D: Nominal Interest Rate
Solution
I = r + π
π = inflation rate
r = real interest rate
so I = 5.5% + 2.1% = 7.6% (before investment)
I = 5.7% + 2.5% = 8.2% (after investment)