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Assume that when an economy has a GDP of $500, Consumption is $550. The MPC is .75. Begin the problem by setting up an Income/Consumption

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Assume that when an economy has a GDP of $500, Consumption is $550. The MPC is .75. Begin the problem by setting up an Income/Consumption Schedule like the one on page 198 of your text using Columns 1, 2, and 3. See below for the start of that table. Refer to Key Graph (Figure 10.2). 1. Graph the Consumption Function and the 45' Break-Even line. Key Graph (Figure 10.2) 2. What is the multiplier? The multiplier formula is at the bottom of page 209. 3. What is the Break-Even level of Income? 4. If GDP and Income are currently at 500, what is the level of savings? 5. If GDP and Income are currently at 800, what is the level of savings? GDP=Income Consumption Saving 400 475 500 550 600 700 800 900

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