Based on equilibrium real output and equilibrium interest rate

) Given that money supply is KSh 1400 millions, autonomous consumption is KSh120 million, while the responsiveness of consumption to changes in disposable income is estimated to be 80% by the ministry of planning. Aggregate autonomous investment is ksh 200 million investment while one % increase in interest rate changes investment by KSh10 millions. The government collected KSh 200 million as tax revenue and wishes to increase expenditure by 10% above the revenue collected. The transactionary and precautionary demand for money function is expressed as mt/p=0.1y while the speculative money demand ms/p is -100r .
(i)Solve for equilibrium real output and equilibrium interest rate
(ii) What is the effect of the new expenditure plan impact on income and consumption?
kennedy
Asked Oct 28, 2014

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