6. You are given the following data concerning Freedonia, a leg- endary country: (1) Consumption function: C = 200 + 0.8Y (2) Investment function: I = 100 (3) AE = C + I (4) AE = Y a. What is the...


6. You are given the following data concerning Freedonia, a leg-<br>endary country:<br>(1) Consumption function: C = 200 + 0.8Y<br>(2) Investment function: I = 100<br>(3) AE = C + I<br>(4) AE = Y<br>a. What is the marginal propensity to consume in Freedonia,<br>and what is the marginal propensity to save?<br>b. Graph equations (3) and (4) and solve for equilibrium<br>income.<br>C. Suppose equation (2) is changed to (2´) I = 110. What is<br>the new equilibrium level of income? By how much does<br>the $10 increase in planned investment change equilibrium<br>income? What is the value of the multiplier?<br>

Extracted text: 6. You are given the following data concerning Freedonia, a leg- endary country: (1) Consumption function: C = 200 + 0.8Y (2) Investment function: I = 100 (3) AE = C + I (4) AE = Y a. What is the marginal propensity to consume in Freedonia, and what is the marginal propensity to save? b. Graph equations (3) and (4) and solve for equilibrium income. C. Suppose equation (2) is changed to (2´) I = 110. What is the new equilibrium level of income? By how much does the $10 increase in planned investment change equilibrium income? What is the value of the multiplier?

Jun 11, 2022
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