ECO403 Macroeconomics Assignment No.2 Solution Fall Semester 2013

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Idea 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

Government Spending Multiplier = 1/MPS

Before = 3.33

After = 4


C. Tax multiplier before and after the investment

Tax multiplier = - MPC/MPS

Before = -2.33

After = -3

Part D: Nominal Interest Rate

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)