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Solve for the equilibrium values of c

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Assume that GDP (Y) is 5,000. Consumption (C) is given by the equation C = 1,200 + 0.3(Y - T) - 50r, where r is the real interest rate. Investment (I) is given by the equation I = 1,500 - 50r. Taxes (T) are 1,000 and government spending (G) is 1,500.

-According to this model, if income increases by 1, how much does consumption change?

-If the real interest rate r increases by 1 (per cent), what happens to total consumption? Can you offer a reason to explain why this is a plausible assumption?

-Solve for the equilibrium values of C, I and r.

Reference no: EM132655547

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