What impact does this new investment have on

Reference no: EM133629416

Consider a tiny economy off the Queensland coast called Fraser Island which currently has a total output of $500 million, investment of $50 million and a multiplier of 2. The equilibrium equation for Fraser Island is represented by the following: i. What idea does this equation capture? Explain. (4 marks) ii. What is the aggregate demand and autonomous consumption for the Fraser Island economy? (Make sure to show your calculations). (4 marks) iii. What is the marginal propensity to consume (MPC) for the Fraser Island economy? (Show your calculations). Do you expect this MPC to be the same across income and wealth distributions on Fraser Island? Explain. (4 marks) b) The rising cost of living has caused consumer confidence on Fraser Island to fall. As a result, the Fraser Island government (FIG) has decided to intervene before aggregate demand is affected. FIG has decided to invest $100 million in Fraser Island's infrastructure. i. What impact does this new investment have on Fraser Island's GDP? What is Fraser Island's new GDP? (2 marks) ii. Using a diagram, show the changes that the $100 million investment has on Fraser Island's economy. Make sure your diagram is properly labelled.

Reference no: EM133629416

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