Essay
Assume that consumption is represented by the following: C = 200 + 0.75Y. Also assume that investment (I) equals 300.
(a) Given the information, calculate the equilibrium level of income.
(b) Given the information, calculate the level of consumption and saving that occurs at the equilibrium level of income.
(c) Now suppose that individuals decide to increase their saving so that autonomous consumption falls by 100. The consumption function is now C = 100 + 0.75Y. Calculate the new equilibrium level of income, the new level of consumption, and the new level of saving.
(d) Based on your analysis in Part (c), did the level of saving change as a result of this increased desire to save? Explain.
Correct Answer:
Verified
(a) Y = 2,000.
(b) C = 1,700 and S = 300...View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Correct Answer:
Verified
(b) C = 1,700 and S = 300...
View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Q98: Recall Application 1, "Falling Home Prices, the
Q99: The higher the marginal propensity to consume,
Q100: You are given the following income- expenditures
Q101: Suppose the economy is in equilibrium. Now,
Q102: Firms react to unplanned increases in inventories
Q104: Recall Application 4, "The Locomotive Effect: Why
Q105: Define the consumption function. What does the
Q106: Because the marginal propensity to consume is
Q107: Recall Application 4, "The Locomotive Effect: Why
Q108: A decrease in the government spending will