Consider the macroeconomic model of a two-sector economy (i.e. no government or trade) using standard notation. Assume that the consumption function is linear, i.e. of the form: C = a +bY . It is known that when ? = 110, the value of consumption, C , is equal to 160.8, and that when ? = 170, the value of C is 207.6. (a) Determine the consumption function and derive the savings ( S ) function for the model. What is the marginal propensity to consume? (b) Determine the equilibrium level of national income when planned investment ? = 255.

Consider the macroeconomic model of a two-sector economy (i.e. no government or trade) using standard notation. Assume that the consumption function is linear, i.e. of the form: C = a +bY . It is known that when ? = 110, the value of consumption, C , is equal to 160.8, and that when ? = 170, the value of C is 207.6. (a) Determine the consumption function and derive the savings ( S ) function for the model. What is the marginal propensity to consume? (b) Determine the equilibrium level of national income when planned investment ? = 255.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.7P

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