1. On the graft below, draw the consumption function C=$150+0.8YD.
Consumption is $billions per year.
Disposable income is $100 billion per year.
Answer the following questions:
• At what level of income do households begin to save? Indicate the point on the graph with the letter A.
• By how much does consumption increase when income rises $200 beyond point A? Indicate this new level of consumption with point B.
(15 arks)
2. Fiscal and monetary tools are used to fix the macro economy. Briefly explain how might a tax cut affect both AD and AS? (10 marks)
3. One of the goals of a Federated Government is to stimulate the economy. This may be achieved in three distinct steps. You are required to use 3 different grafts to indicate these three steps. (15 marks).
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