You are given the following data concerning Freedonia, a new republic. 1) Consumption is 200 when income is zero and the marginal propensity to consume is 0.6 out of every dollar increase in income 2) Investment function: I = 200 3) AE ≡ C + I 4) AE = Y A. Derive the savings function? B. Suppose equation 2) is changed to I = 150. What is the new equilibrium level of income (Y)? By how much does the $50 decrease in planned investment change equilibrium income? What is the value of the tax multiplier? C. Plot the savings function from a. on a graph with equation 2).
You are given the following data concerning Freedonia, a new republic. 1) Consumption is 200 when income is zero and the marginal propensity to consume is 0.6 out of every dollar increase in income 2) Investment function: I = 200 3) AE ≡ C + I 4) AE = Y A. Derive the savings function? B. Suppose equation 2) is changed to I = 150. What is the new equilibrium level of income (Y)? By how much does the $50 decrease in planned investment change equilibrium income? What is the value of the tax multiplier? C. Plot the savings function from a. on a graph with equation 2).
Chapter9: Aggregate Expenditures
Section: Chapter Questions
Problem 11E
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. You are given the following data concerning Freedonia, a new republic.
1) Consumption is 200 when income is zero and the marginal propensity to consume is 0.6 out of every dollar increase in income
2) Investment function: I = 200
3) AE ≡ C + I
4) AE = Y
A. Derive the savings function?
B. Suppose equation 2) is changed to I = 150. What is the new equilibrium level of income (Y)? By how much does the $50 decrease in planned investment change equilibrium income? What is the value of the tax multiplier?
C. Plot the savings function from a. on a graph with equation 2).
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