Question 1 Consider a closed economy

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Question 1 Consider a closed economy. C = $5000+ 0.8Y, I = $600, G = $1000, T= $0 i. Explain the marginal propensity of consume (MPC). Based on information given above, what is the value of MPC? (3 marks) ii. What is the level of autonomous consumption given the consumption function? (2 marks) ii. Using the information above, derive the saving function. Show your workings clearly. (3 marks) iv. Determine the equilibrium level of income for this economy. Show your workings clearly. (2 marks) V. Based on your answer in part iii), what is the amount of total saving IF the equilibrium level of income is $ 35,000? Show your working. (2 marks) vi. Based on your answer in part iv), if the full employment level of income is at $36,000, does it experience a deflationary gap or an inflationary gap? Using the information given, show this with a Keynesian 45º diagram. You are required to show the equilibrium level of income, full employment level of income, and the gap. No explanation is required. (5 marks) vii. If new government spending amount is $1400 and given the equilibrium income in part iv), what is the new equilibrium level of income? Use multiplier approach. (3 marks) viii. Explain ONE (1) reason that would cause firms to increase their investment activity. Use a Keynesian 45º diagram to illustrate the effects of such activity.