What is the marginal propensity to consume, Macroeconomics

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Question 1:

Consider a closed economy with no government sector in which consumption (C) is related to income (Y) by the equation:

C = A + bY

(a) What is the marginal propensity to consume?

(b) How is the level of savings related to income in the economy?

(c) At what is the level of national income savings would be zero?

(d) What would be the equilibrium level of income?

(e) Investment in this model is assumed to be autonomous. If investment was assumed to be induced, what main factor will determine its level?

(f) Clearly draw and explain the circular flow when the government sector is introduced in the model.

Question 2:

Write notes on ALL of the following:

(a) Functions of the Bank of Mauritius
(b) International Competitiveness
(c) Budget Deficit and Fiscal Stance


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