Assume That Consumption Is Represented by the Following: C =

question 103

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.

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Definitions:

System Optimization

The process of making a system as effective or functional as possible by adjusting its components and operations.

Lithosphere

The rigid outer layer of the Earth, consisting of the crust and upper mantle.

Upper Mantle

The portion of the Earth's mantle that lies just beneath the crust, extending to a depth of about 660 kilometers.

Nitrogen Cycle

The series of processes by which nitrogen and its compounds are interconverted in the environment and in living organisms, including nitrogen fixation and decomposition.