Consider a closed, simple economy (not necessarily at full employment) with no government, characterized by the following equations, (C is Consumption, Y is household Income, and I is Investment):

C = 200 + .8(Y) I = 200

a. Graph the Consumption, Investment, and Aggregate Expenditures Functions.

b. On the Graph, label the point where Savings = 0, and label the point of equilibrium income. Then, derive the values for these using the equations above.

Savings = 0, Consumption = Income = ____________ Equilibrium Income = _____________

c. At Equilibrium, how much are consumers saving? Investment?

Equilibrium Savings = ___________ Equilibrium Investment = __________

d. What is the relationship between these two concepts in the model?

e. What happens to equilibrium Income and Savings when Investors get pessimistic and reduce Investment to 100?

New Equilibrium Income = _________ New Equilibrium Savings = _________