Assume in a simple economy that the level of saving is –500 when aggregate output equals zero and that the marginal propensity to save is 0.2. Derive the saving function and the consumption func- tion, and draw a graph showing these functions. At what level of aggregate output does the consumption curve cross the 45° line? Explain your answer and show this on the graph.
Assume in a simple economy that the level of saving is –500 when aggregate output equals zero and that the marginal propensity to save is 0.2. Derive the saving function and the consumption func- tion, and draw a graph showing these functions. At what level of aggregate output does the consumption curve cross the 45° line? Explain your answer and show this on the graph.
Chapter9: Aggregate Demand
Section: Chapter Questions
Problem 1.1P
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Assume in a simple economy that the level of saving is –500 when
aggregate output equals zero and that the marginal propensity to
save is 0.2. Derive the saving function and the consumption func-
tion, and draw a graph showing these functions. At what level of
aggregate output does the consumption curve cross the 45° line?
Explain your answer and show this on the graph.
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