Consider a Keynesian Consumption Function with Desired Consumption Equal to 0.9

question 22

Essay

Consider a Keynesian consumption function with desired consumption equal to 0.9 Y, where Y is income. Government purchases are $1000, net exports are zero, and desired investment varies with real interest rate according to the following schedule: $$\begin{array} { c c } r & I d \\5 \% & \$ 3000 \\4 \% & 3500 \\3 \% & 4000 \\2 \% & 4500\end{array}$$ Assume the interest rate adjusts so that the economy gets to equilibrium. Equilibrium output at full employment is $50,000. Find the values of consumption, investment, and the real interest rate at full-employment equilibrium.

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