Homework Answers
In equilibrium Y = C + I
a) There is positive realtionship between income and consumption, income and investment. Any increase/decrease in either consumption or investment will increase/decrease income.
b) Multiplier = 1/ (1-MPC)
Here, MPC = 0.8
multiplier = 1/0.2 = 5
c) If investment increases by 20 then the income will also increase by 20 as investment and income have a direct relationship.
d) In equilibrium planned savings and planned investment are always equal. Planned savings and planned investment move in the same direction in equilibrium.
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