Introduction to Economics - II    (Final)

1. Explain very briefly what you understand from consumption and saving functions. Show and explain the effects of changes in wealth on consumption and saving functions.

2. Show and explain the effects of multiplier when the price level changes by assuming that there is an increase in autonomous investment expenditures.

3. Show and explain how the government can remove the recessionary gap by using fiscal policy tools , namely, taxes and expenditures.

4. Explain how the transmission mechanism for an expansionary monetary shock works and show and explain the effects of increase in money supply.

5. Explain very briefly what you understand from demand shock inflation. Show and explain the effects of  monetary validated demand shock inflation.

6. Suppose that the autonomous investment increases by 600 billion in the economy. Assuming that the marginal income tax rate (t) is 10%, marginal propensity to consume is (mpc) 90% and marginal propensity to import (m) is 7 %. Having this information:

a) Calculate the change in national income in the closed economy with no government.

b) Calculate the change in national income in the closed economy with the government

c) Calculate the change in national income in the open economy with the government