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Problem (1) C = 20 + 0.8 Y Consumption Function I = 100 Investment Find the following:1. Marginal Propensity to Consume (MPC): MPC = 0.82. Marginal Propensity to Save (MPS): MPC + MPS =1

MPS = 1 – MPC = 1 – 0.8 = 0.2

2

C = 20 + 0.8 Y Consumption FunctionI = 100 Investment

3.The Equilibrium Domestic income (Y): Y = C + I Y = 20 + 0.8 Y + 100 Y – 0.8 Y = 120 (1- 0.8) Y = 120 0.2 Y = 120 Y = 120/0.2 = 600

4. Autonomous Consumption ( ): = 20

5. Induced Consumption (MPC)Y): = 0.8 * 600 = 480

Ca

3

C = 20 + 0.8 Y Consumption FunctionI = 100 Investment

6. Consumption at Equilibrium (C):C = Autonomous Consumption + Induced ConsumptionC = 20 + 480 = 500

7. Saving at Equilibrium (S):S = Y – C = 600 – 500 = 100

S = I

4

8- show the equilibrium Y graphically?

Y

S AND i

100

600

0

S

n

I

5

C = 10 + 0.7 YI = 50Find the Following:

1. Marginal Propensity to Consume (MPC)MPC = 0.7

2. Marginal Propensity to Save (MPS)MPC = 1 – MPC = 1 - 0.7 = 0.3

3. Autonomous Consumption ( ) = 10

4. Y at equilibriumY = C + IY = 10 + 0.7 Y + 50Y – 0.7 Y = 10 + 50(1 – 0.7 ) Y = 600.3 Y = 60Y = 60 / 0.3 = 200

Problem (2)

Ca

6

5. Induced Consumption

= MPC * Y = 0.7 * 200 = 140

6. Total Consumption

= Autonomous Consumption + Induced C.

= 10 + 140 = 150

7. Total Saving

S = Y- C

S = 200 – 150 = 50 S= I = 50

C = 10 + 0.7 YI = 50

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8- show the equilibrium Y graphically? 8- show the equilibrium Y graphically?

200

50

0

C

Y

n

S

I

8

C = 50 + 0.6 Y

Find Saving Function

Solution

S = - 50 + 0.4 Y

Problem (4) S = - 50 + 0.2 YFind Consumption Function

SolutionC = 50 + 0.8 Y________________________

Problem (3)

9

Problem (5)

50 0.6

Find the autonomous investment multiplier (

Solution

Kt

1 1 1 2.51 1 0.6 0.4

)C Y

Kt MPC