1. The population of the Czech Republic is ageing quickly and the old, who spent a relatively small proportion of each new crown (their monetary unit) of income, are being replaced by the young who spend a relatively larger proportion of their income. Older citizens also have different fixed consumption expenditures than in their younger days.Illustrate on a graph of planned expenditures how various changes in the components of consumption behavior of Czech consumers can/will affect the consumption function and thus equilibrium output.Explain why the graph changes if consumption changes, and illustrate the effect on equilibrium output.Would it be possible for young Czechs to both spend a larger proportion of each new dollar of income and still save in the same proportion as their elders?Explain.

1. Explain, using the mathematical definition of equilibrium Y, Y_e, the role played by autonomous spending in determining the size of Y_e and changes in its size. Now, assume that there is a change in I_p of $100 and a change in G of $100, and that for every new dollar of income household saving rises by 25 cents; by how much will Y_e change, if at all? Your third task is to compare this effect on Y_e of the follow two other changes:A rise in G of $100 and a rise in Ta of $100 - is the effect the same as above? Why or why not?What if we had a rise in G of $100 but a fall in NX or $100 - would the change in Ye be the same? Why or why not?