A5 Suppose that consumption at the aggregate level follows the following expression: C t =20+.6Y t-1 ,
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A5
Suppose that consumption at the aggregate level follows the following expression: Ct=20+.6Yt-1, the investment is given by It=20+.1Yt and the income is determined by the expression Yt= Ct+It.
i) use the expressions for consumption and investment in the expression that determines income to find an equation in first differences
ii) Find the solution to the equation
iii) Say whether as time progresses to infinity the income converges to a constant. If convergent, what is the constant?
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