Assume That the Consumption Function Is Given by C =

question 24

Essay

Assume that the consumption function is given by C = 200 + 0.5(Y - T) and the investment function is
I = 1,000 - 200r, where r is measured in percent, G equals 300, and T equals 200.
a. What is the numerical formula for the IS curve? (Hint: Substitute for C, I, and G
in the equation Y = C + I + G and then write an equation for Y as a function of r
or r as a function of Y.) Express the equation two ways.
b. What is the slope of the IS curve? (Hint: The slope of the IS curve is the coefficient of Y when the IS curve is written expressing r as a function of Y.)
c. If r is one percent, what is I? what is Y? If r is 3 percent, what is I? what is Y? If
r is 5 percent, what is I? what is Y?
d. If G increases, does the IS curve shift upward and to the right or downward and to the left?

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Definitions:

Cognitive

Relating to mental processes such as awareness, perception, reasoning, and judgement.

Behavioral

Pertaining to behaviors, a term often used to describe actions or reactions of individuals in response to external or internal stimuli.

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A professional who applies theories and practices of psychodynamic psychology, focusing on unconscious processes as they are manifested in a patient's present behavior.

Free Associate

A psychoanalytic technique where patients are encouraged to express their thoughts freely, letting their mind wander without censorship, to uncover unconscious thoughts and feelings.