Question: Suppose that the Consumption Function in an economy is given by: C = 8 0 + 0 . 6 Y Also assume that: I =

Suppose that the Consumption Function in an economy is given by: C=80+0.6Y Also assume that: I =0 G=0 NX =0 If the Marginal Propensity to Consume (MPC) is equal to 0.8, then what must be the tax rate in this example? What must be the Savings Function as a function of National Income (Y) be? What is the AEF as a function of National Income (Y)? What is the equilibrium National Income (Y)? What is equilibrium Desired Consumption (C) and Desired Savings (S) in this example?

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