Homework Answers
(a) At C = Y, household will begin to save.
$300 billion + 0.5YD = Y
$300 billion + 0,5Y = Y (note: YD = (Y - T) if T = 0, then YD = Y)
$300 billion = Y - 0.5Y
$300 billion = 0.5Y
Y = ($300 billion / 0.5)
Y = $600 billion.
Answer: $600 billion.
(b) When income is $600 billion then consumption is $600 billion.
If disposable income increase by $100 billion beyond $600 billion then consumption will increase by $50 billion.
C = $300 billion + 0.5 YD
(Change in C / Change in YD )= 0,5
Change in C = 0.5 (Change in YD)
Change in C = 0.5 ($100 billion)
Change in C = $50 billion.
Answer: $50 billion
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