Suppose the initial conditions of the economy are characterized by the following equations. In this problem, we assume that prices are fixed at 1 (the price index is 100 and when we deflate, we use 1.00) so that nominal wealth equals real wealth.

1) C = a₀ + a₁ (Y-T) + a₂ (WSM) + a₃ (WRE) + a₄ (CC) + a₅ (r)

1') C = a₀ + a₁ (Y-200) + a₂ (10,000) + a₃ (15,000) + a₄ (100) + a₅ (3)

2) I = b₀ + b₁AS + b₂CF + b₃ (r)

2') I = b₀ + b₁ (160) + b₂ (1800) + b₃ (3)

3) G = G

3') G = 400

4) X-M = X-M

4') X-M = -200

Where: a₀ = 200, a₁ = .80, a₂ = .05, a₃ = .10, a₄ = .8, a₅ = -500, b₀ = 300, b₁ = .5, b₂ = .5, b₃ = -200

Derive an expression for the consumption function and graph it on your exam sheet. Show all work