You are given the following data concerning Freedonia, a
Question and Solution
You are given the following data concerning Freedonia, a legendary country: (1) Consumption function: C = 200 + 0.8Y (2)
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You are given the following data concerning Freedonia, a legendary country: (1) Consumption function: C = 200 + 0.8Y (2) Investment function: I = 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
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