Calculation of Consumption at Equilibrium level of Income.
Assume consumption is represented by the following: C=200+0.9 Y. Also assume that planned investment (I) equals 300.
(a) Now suppose the level of planned income is equal to 4000. Illustrate what is level of planned AE at this level of income. Illustrate what is the value of any unplanned changes in inventories?
(b)Given the information, find out the equilibrium level of income
(c) Given the information find out the level of consumption and saving that occurs at the equilibrium level of income.
(d) Suppose planned investment falls by 100. Graphically illustrate using the AE-Y graph the effects of this reduction in planned investment on the economy. Also find out the new equilibrium level of income.