16. Suppose that planned investment and planned government purchases do not depend on income: I = 15 and G = 17. Consumption, as you would expect, does depend on income via the consumption function C = 2 + 0.75Y – 0.75T. Net taxes are T = 12. Your friend thinks that the equilibrium will be where Y = 150 but he is wrong. What is the best description of this situation? a. the (Y, AE) point is above the 45 degree line, Y will adjust down b. the (Y, AE) point is above the 45 degree line, Y will adjust up c. the (Y, AE) point is below the 45 degree line, Y will adjust down d. the (Y, AE) point is below the 45 degree line, Y will adjust up
16. Suppose that planned investment and planned government purchases do not depend on income:
I = 15 and G = 17. Consumption, as you would expect, does depend on income via the consumption function C = 2 + 0.75Y – 0.75T. Net taxes are T = 12.
Your friend thinks that the equilibrium will be where Y = 150 but he is wrong. What is the best description of this situation?
a. the (Y, AE) point is above the 45 degree line, Y will adjust down
b. the (Y, AE) point is above the 45 degree line, Y will adjust up
c. the (Y, AE) point is below the 45 degree line, Y will adjust down
d. the (Y, AE) point is below the 45 degree line, Y will adjust up
17. (continued) Help you friend by calculating the equilibrium income for the AE model in the previous question.
Y = _____
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