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What is the value of the marginal propensity to consume

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Q1. Consider an economy described by the following parameters:

G=2000X - M=500I=1300T=1000C=1000+0.8(Y - T)

a) What is the level of the autonomous consumption in this economy?

b) What is the MPC for this economy?

c) Calculate the equilibrium level of income.

Q2. Consider a simple economy in which whole investment is constant and equal to $50 billion. There are no government or foreign sectors, and the price level is constant.

Assume that consumption behavior can be described as C = $40 billion + .8Y.

a) What is the value of the marginal propensity to consume?

b) What would be the value of consumption if Y = $500 billion?

c) What is the equilibrium level of income in this model?

d) Suppose that desired investment were to call to $40 billion. What would happen to equilibrium income?

Reference no: EM132925385

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