Question

in a certain economy the marginal propensity to save is 0.2 and the autonomous consumption is 400
a) formulate the consumption functions
b)if the government expenditures were to be increased by 50% what would be the resultant change in national income

Answer 1

the consumption functions is: C = 400+0,8*(Y-T) , where C - consumption, Y - the income, T - taxes
Y = C + I + G so, if government expenditures were to be increased by 50%, the national income would increase as well.