Assume That Consumption Is Represented by the Following: C =

question 228

Essay

Assume that consumption is represented by the following: C = 200 + 0.9Y. Also assume that planned investment (I) equals 300.
(a) Now, suppose the level of income is equal to 4,000. What is the level of aggregate expenditures at this level of income? What is the value of any unplanned changes in inventories?
(b) Given the information, calculate the equilibrium level of income.
(c) Given the information, calculate the level of consumption and saving that occurs at the equilibrium level of income.
(d) Suppose planned investment falls by 100. Calculate the new level of equilibrium income.

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Definitions:

Transfer Payments

Payments made by the government to individuals for which no goods or services are provided in return, such as welfare benefits.

Budget Deficit

The situation where a government's expenditures surpass its revenue over a specific period, leading to borrowing or debt accumulation.

Government Purchases

Expenditures by government entities on goods and services that directly absorb resources and are part of the nation's gross domestic product (GDP).

Discretionary Fiscal Policy

Government policy involving deliberate measures, such as taxation and spending, to influence economic activity.