Answer to Question #122336 in Macroeconomics for Evans Arhin Fosu

Question

In a close private economy the level of planned investment is 300 and the savings function is S=-100 +0.25Y. The equilibrium level of income and consumption respectively is

Answer 1

$S=-100+0.25Y$

$I=300 (investment)$

Output in equilibrium $Y=C+I+G+X-M$

Consumption function

$C=a+b(Y-T)$

Saving function

$S=-a+(1-b)(Y-T)$

$Y=100+0.75Y+300$

$Y=400+0.75Y$

$C=100+0.75Y$