Answer to Question #226462 in Macroeconomics for beezee

Question

Suppose the consumption behavior in problem 1 changes so that C 5 100 1 .9 Y , while

I remains at 50.

a. Is the equilibrium level of income higher or lower than it was in problem 1( a )? Calculate

the new equilibrium level, Y9 , to verify this.

b. Now suppose investment increases to I 5 100, just as in problem 1( d ). What is the new

equilibrium income?

c. Does this change in investment spending have more or less of an effect on Y than it did

in problem 1? Why?

d. Draw a diagram indicating the change in equilibrium income in this case.

Answer 1

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