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 Derive the savings function? Graph equations 3) and 4) and solve for equilibrium income (Y). Suppose equation 2) is changed to I = 150. What is the new equilibrium level of income (Y
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 Derive the savings function? Graph equations 3) and 4) and solve for equilibrium income (Y). Suppose equation 2) is changed to I = 150. What is the new equilibrium level of income (Y
Macroeconomics: Principles and Policy (MindTap Course List)
13th Edition
ISBN:9781305280601
Author:William J. Baumol, Alan S. Blinder
Publisher:William J. Baumol, Alan S. Blinder
Chapter8: Aggregate Demand And The Powerful Consumer
Section: Chapter Questions
Problem 3TY
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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
- Derive the savings function?
- Graph equations 3) and 4) and solve for equilibrium income (Y).
- 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?
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