(a) Assume the following information represents the National Income model of an
‘Utopian’ economy.
Y = C + I +G
C = a + b (Y – T)
T = d + tY
I = Io
G = Go
Where a > O; O < b < 1
d > O; O < t < 1
T = Taxes
I = Investment
G = Government Expenditure
(i) Explain the economic interpretation of the parameters a, b, d, and t.
(4 marks)
(ii) Find the equilibrium values of income consumption and taxes. (8 marks)
(b) Discuss the three approaches used in measuring the national income of a country and
show why they give the same estimates. (8 marks)