In an economy, autonomous consumption expenditure is Ksh.50 billion, investment is Ksh. 200 billion, and government expenditure is Ksh.250 billion. The marginal propensity to consume is 0.7 and net taxes are $Ksh.50 billion. Exports are Ksh.500 billion and imports are Ksh.450 billion. Assume that net taxes and imports are autonomous, and the price level is fixed. What is the consumption function? (2 Marks)
Calculate the equilibrium value of Y, C (4 Marks)
Calculate the Keynesian multiplier and provide an intuitive interpretation of it. (4 Marks)
Consider the effects of Corona virus pandemic on the macro economy in Kenya. Suppose we assume that the massive lockdown of the economy that followed the outbreak represents a large negative aggregate demand shock, use the aggregate demand-long-run aggregate supply-short-run aggregate supply (AD-LRAS-SRAS) model to show what happens to output, prices and unemployment. (10 Marks)