150f 15 (6 complete) Text Problem 4.5a You are given the following data concerni

Question

150f 15 (6 complete) Text Problem 4.5a You are given the following data concerning Freedonia, a legendary country: * Consumption function: C = 100 + 080Y . Investment function: I 300 Aggregate expenditure function: AE C+ Equilibrium: AE Y The MPC in Freedonia is 0.8. (Round your response to two decimal places.) The MPS in Freedonia is 02 (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 5. (Round your response to two decimal places.) Suppose the level of investment increases by $10. The change in the level of equilibrium income if investment increases by $10 is sRound your response to two decimal places)

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

now as multiplier is 5 and investment increase by 10 thus eqb income increases by 50

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