Use the following information about a small economy to answer the questions. All the autonomous expenditures are given in $ million.
 Consumption expenditure (C )= $50 + 0.8 (Y – T).
 Investment(I) = $20
 Government expenditure(G) =$30,
 Tax(T) = 0.05Y
 Export(X) = $10
 Import(M) = 0.1Y
Determine the aggregate expenditure(AE) equation. Provide the working to your
answer.
b) Determine the equilibrium level of income? Provide the working to your answer.

c) Suppose the government increases its expenditure by $10 million. Determine the new
equilibrium income? Provide the working to your answer.
d) How much the government must increase its spending to achieve an equilibrium
income of $500 million? Provide the working to your answer.
e) Suppose the full-employment income is $600 million. Describe the current economic

situation. What needs to be done to have the equilibrium income equal the full-
employment income? Provide the working to your answer.