Assume That the Consumption Function Is Given by C = $I S$

question 32

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 $I S$ 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 $I S$ curve shift upward and to the right or downward and to the left?

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Definitions:

Making Products

Turning raw materials, components, or parts into completed products that fulfill a customer's demands or specifications is the process involved.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold in a company, including cost of materials and labor.

Finished Goods

Items that are fully manufactured but remain unsold to consumers.

Conversion Costs

Costs associated with converting raw materials into finished products, which typically include both direct labor costs and manufacturing overhead costs.