Question: 2. Suppose the consumption behavior in problem 1 changes so that C 100 .9 Y , while I remains at 50. a. Is

2. Suppose the consumption behavior in problem 1 changes so that C  100  .9 Y , while I remains at 50.

a. Is the equilibrium level of income higher or lower than it was in problem 1( a )? Calculate the new equilibrium level, Y , to verify this.

b. Now suppose investment increases to I  100, just as in problem 1( d ). What is the new equilibrium income?

c. Does this change in investment spending have more or less of an effect on Y than it did in problem 1? Why?

d. Draw a diagram indicating the change in equilibrium income in this case.

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