ECO202Y1 Study Guide - Final Guide: Consumption Function, Parsec, Government Spending

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Suppose we have the following desired expenditure func6ons for the economy: c = 10 + 0. 9yd, ta = 0. 2y. I = 25: g = 17, x = 24, m = 0. 1y i. Calculate the ae schedule ii. Calculate the equilibrium level of na6onal income iii. Clearly label the axes, the equilibrium level of na6onal income, and any intercept. iv. Calculate the new equilibrium level of na6onal income. vi. Why is this di erent from the mul6plier calculated in (iv) i. 1) rewrite the consump6on func6on in terms of y: C = 10 + 0. 9(y ta) C = 10 + 0. 9(y 0. 2y) C = 10 + 0. 72y i. 2) ae = c + i + g + x m. Ae = (10 + 0. 72y) + 25 + 17 + 24 0. 1y. Ae = 76 + 0. 62y ii. Calculate the equilibrium level of na6onal income. Remember, in equilibrium, ae = y. Ae = 76 + 0. 62y = y.

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