# Explain the concept of Investment Multiplier and its importance in the economy

Question-1:
Explain the concept of Investment
Multiplier and its importance in the economy? How the value of
Investment Multiplier is determined?

(10 marks)
Question-2: Solve the following
macroeconomic model wherein;
Y = C + I + G + NX is
the equilibrium condition in macroeconomic model
C = 1,000 +
0.65Y consumption function
( C = C0+cYd), where c is MPC
I = 1,500 planned
investment function
G =1,500 government purchases
function
NX = -500 net export function

a.
Find
the value of Real GDP (Y) by solving above macroeconomic model?
b.
If
the value of Marginal Propensity to Consume (MPC) increases from
c =0.65 to
c = 0.75, then how it will affect the
Real GDP (Y) in the economy?

(2 x 5 = 10 marks)

Question-3:
How Aggregate Demand (AD) is different
from Aggregate
Supply (AS)? Explain how each of the following events would affect the
a. An increase in the price level (P)
b. An increase in the government purchases (G)
c. An increase in income tax (t)
d. Higher interest rates (r)

(10
marks)

Question-4:
What is the difference between Monetary
(MP) and Fiscal Policy (FP)? Also explain the tools of Monetary and
Fiscal Policy. Keeping in view these tools, how the government will use both
policies during inflation situation?
(10
marks)

Good
Luck!

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