Score: 0 of 1 pt 15 of 15 Text Problem 4.5a You are given the following data con

Question

Score: 0 of 1 pt 15 of 15 Text Problem 4.5a You are given the following data concerning Freedonia, a legendary country Consumption function: C = 100 + 0.80Y · Investment function: I = 300 ·Aggregate expenditure function: AE = C + I The MPC in Freedonia is 0.8. (Round your response to two decimal places.) The MPS in Freedonia is 0.2. (Round your response to two decimal places.) The level of equilibrium income, Y, is $ 2000. (Enter your response as an integer.) The value of the investment multiplier is (Round your response to two decimal places.) Equilibrium: AE Y

Explanation / Answer

MPC IS THE SLOPE OF CONSUMPTION FUNCTION SO HERE IT IS 0.8

ALSO , MPC+MPS = 1 , THUS MPS = 0.2

NOW, Y = C+I = 400+0.8Y

Y = 2000

Multiplier is given by 1/MPS = 1/0.2 = 5

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