Question

S=-500+0.36y

I=8000

a) consumption function

b) equilibrium level of national income

c) multiplier

Answer 1

a) The consumption function

$C=500+0.64y$

b)The equilibrium level of national income.

$Y=500+0.64y +8000$

$Y=8500+0.64y$

$0.36y=8500$

$Y=\frac{8500}{0.36}$

$Y=23611.11$

c)The Multiplier

$\frac{1}{1-mpc}$

$\frac{1}{1-0.64}$

$K=2.78$