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Draw the consumption function: C = 150 + 0.8Y D Draw the consumption function: C = 150 + 0.8Y D At what level of income do households begin to save? By how much does consumption increase when income rises 200? 750 By 160 to 910 If the consumption function is: C = 200 + 0.9Y D

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Presentation Transcript
slide3
Draw the consumption function:

C = 150 + 0.8YD

At what level of income do households begin to save?

By how much does consumption increase when income rises 200?

750

By 160 to 910

slide5
If the consumption function is:

C = 200 + 0.9YD

What does the saving function look like?

What is the rate of desired saving when disposable income equals

500

1000

2000

S = -200 + 0.1YD

-150

-100

0

slide6
Compute 4 rounds of multiplier effects when autonomous investment increases by 100 million in a closed, private economy (no foreign trade nor government) and MPC = 90%.
slide7

1,000 million or 1 billion

What will be the final cumulative impact on spending?

slide8
Suppose the consumption function is:

C = 400 + 0.8YD

By how much will aggregate demand at current prices shift initially with

-A 50 billion increase in government purchases?

-A 50 billion tax cut

-A 50 billion increase in income transfers

50 billion

40 billion

40 billion

Multiplier = 1 _

1-MPC

slide9
Suppose the consumption function is:

C = 400 + 0.8YD

        • What will be the cumulative AD shift for
          • A 50 billion increase in government purchases?
          • A 50 billion tax cut
          • A 50 billion increase in income transfers

250 billion

200 billion

200 billion

Multiplier = 1 _

1-MPC