Answer to Question #50390 in Macroeconomics for abdulla sabit
b.Given the saving function S=-1.0 +0.2Y and autonomous investment I=$500 million .
1.Find the level of consumption .
2.If investment decreases permanently by $50 million.What is the new level of consumption?
b. If S=-1.0 +0.2Y and autonomous investment I=$500 million, then:
1. The level of consumption is:
C = c*Y, c = 1 - s = 1 - 0.2 = 0.8
I = S
-1 + 0.2Y = 500
Y = $2505 million
C = 0.8*2505 = $2004 million.
2.If investment decreases permanently by $50 million. The new level of consumption will be:
C = 0.8*2280 = $1824 million
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