Question: 3. Consider the consumption function: C = 600+.9Y, where C represents consumption and Y represents disposable income (i.e., Y-T). a. What is the equilibrium

$3. Consider the consumption function: ( C=600+.9 Y_{0} ) where ( C ) represents consumption and ( Y_{0} ) represents di$

3. Consider the consumption function: C = 600+.9Y, where C represents consumption and Y represents disposable income (i.e., Y-T). a. What is the equilibrium level of income and consumption in this economy assuming T=0? (Hint: at equilibrium Y=C) How much savings occurs in this equilibrium? Imagine that the citizens of this country impose an income tax of 10% on themselves. After imposing this tax, how what is the new value of equilibrium income and consumption in this economy? b. c.

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a At equilibrium Y C Substituting C 600 09Y we get Y 600 09Y 01Y 600 Y 6000 Substituting this value ... View full answer

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