Consider an economy described by the following parameters:

G=2000

X - M=500

I=1300

T=1000

C=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.

8.

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?