Assume Consumption Is Represented by the Following: C = 200

question 16

Short Answer

Assume consumption is represented by the following: C = 200 + .9Y. Also assume that planned investment (I) equals 300.
(a) Now, suppose the level of income is equal to 4000. What is the level of planned 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. Graphically illustrate using the AE - Y graph the effects of this reduction in planned investment on the economy. Also, calculate the new level of equilibrium income.
(a) AE = 200 + .9(4000) + 300 = 4100. Unplanned changes in inventories equal
(b) Y = 5000
(c) C = 4700 and S = 300
(d) Y = 4000

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