You are given the following data concerning Freedonia, a legendary country:

Consumption function: 1. Consumption function = 200 + 0.8Y

Investment function: 2. Investment function = 100

3.AE = C + I

4.AE= Y

a. What is the marginal propensity to consume in Freedonia, and what is the marginal

propensity to save?

b. Graph equations (3) and (4) and solve for equilibrium income.

c. Suppose equation (2) is changed to (2) I = 110. What is the new equilibrium level of

income? By how much does the $10 increase in planned investment change equilibrium

income? What is the value of the multiplier?

d. Calculate the saving function for Freedonia. Plot this saving function on a graph with

equation (2). Explain why the equilibrium income in this graph must be the same as in

part b.