In the context of macroeconomics, assume Kenya's consumption function is C = 23500 + 0.78Y and the marginal propensity to import (mpm) is 0.35. Calculate the multiplier for both closed and open economies. Discuss four measures for economic growth and explain expansionary fiscal policy using the AD-AS model. Additionally, outline three budget types, analyze the negative effects of borrowing, and suggest two fiscal management measures.

(a)

Step 1: The formula for the simple spending multiplier is
$k = \frac{1}{1 - c}$
where $c$ is the marginal propensity to consume (MPC).

Step 2: Substitute $c = 0.8$:
$k = \frac{1}{1 - 0.8} = \frac{1}{0.2}$

Step 3: Simplify:
$k = 5$

The multiplier is $\mathbf{5}$.
5

(b)
From the multiplier of 5, the government can improve the economy by using expansionary fiscal policy. One measure is to increase government spending ($G$).
For example, a $10$ billion increase in $G$ leads to:
$\Delta Y = k \times \Delta G = 5 \times 10 = 50$ billion increase in GDP.

(c)
Step 1: In the AD/AS model, expansionary fiscal policy (e.g., $\uparrow G$ or $\downarrow T$) shifts the AD curve rightward from AD$_1$ to AD$_2$.

Step 2: Short-run effect: Intersection with SRAS moves from E$_1$ to E$_2$, increasing real output from $Y_1$ to $Y_2$ and price level from $P_1$ to $P_2$.

Step 3: This closes a recessionary gap if the economy is below full employment ($Y_f$). Contractionary policy shifts AD left to close an inflationary gap.

Fiscal policy thus stabilizes output via AD shifts.

(d)
The two types of fiscal policy Bulgaria can use are:

1. Expansionary fiscal policy: Increase $G$ or cut taxes to boost AD.
2. Contractionary fiscal policy: Decrease $G$ or raise taxes to reduce AD.

(e)
Kenya's heavy reliance on domestic and international borrowing has negative effects:

1. High debt servicing costs: Crowds out private investment and essential spending (e.g., health, education).
2. Vulnerability to external shocks: Currency depreciation increases foreign debt burden; donor conditions limit policy autonomy.
3. Inflationary pressure: Domestic borrowing raises interest rates.

(f)
Two measures for better fiscal management:

1. Implement fiscal rules: Set legal limits on budget deficits (e.g., deficit < 3% of GDP) to enforce discipline and prevent overspending.
2. Debt sustainability analysis: Regularly assess debt-to-GDP ratio and introduce medium-term expenditure frameworks to align spending with revenue.