Calculate the saving function

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Reference no: EM13175101

Freedonia, a legendary country:

(1) Consumption function: C = 1000 + 0.95Y

(2) Investment function: I = 400

(3) AE = C + I

(4) AE = Y

a. What is the marginal propensity to consume and the marginal propensity to save?

b. Solve for equilibrium income.

c. Suppose the second equation is changed to I = 500. What is the new equilibrium level of income? How much does the $100 increase in investment change equilibrium GDP?

d. Calculate the saving function.

Reference no: EM13175101

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