Question

Suppose that the economy is characteised by the following behavioral equations C=Co +c1Yd
Where : Co=280
I=270
G=300
T=200
Marginal propensity to save (MPS) is 0.4(or 40%)
Solve for
a) equlibrum Gdp (Y)
b) disposable income (Yd)
C) Consumption spending (C)

Answer 1

a) $Y= I+G$

Y=300+270=570

b) $Yd=I-T$

Yd= 270-200= 70

C)$C=Co +c1Yd$

C=280-C1*70