Q# 1. Use the consumption function data of a simply economy below to answer the following questions:

Real Disposable IncomeConsumptionSavingMPCMPS

(in trillion $)

01.00________ ____

11.75________ ____

22.50________ ____

33.25________ ____

44.00________ ____

54.75________ ____

65.50________ ____

76.25________ ____

87.00________ ____

1. Calculate the saving schedule
2. Graph the consumption function. Note : the equation for aggregate expenditure

AE / Consumption function as in the chapter is a linear equation C = a + bY

1. Determine the marginal propensities to consume (MPC) and save (MPS)
2. Determine the break-even/equilibrium level of real disposable income.
3. What is the value of saving at the equilibrium level.
4. What is the relationship between the MPC and the MPS?

Q# 2. Suppose you have the following information about a closed economy: C = 50 + 0.80 Y I =150 G = 175 Where C is consumption, I is investment, G is Government expenditure and Y is income.

a.Find out the equilibrium level of income.

b.Suppose I increases to 210 what is the new equilibrium level of income?

c.What level of G is needed to achieve a target income of 4850?