Please no written by hand solutions 4. Consider a consumption function given byC = 0.8Y + 2000Assume first a closed economy with no government. (Then income = disposable income)a. If investment is x, draw the aggregate expenditure function (which depicts totalconsumption plus investment for every level of income). Include in your graphthe original consumption function and the aggregate expenditure function.b. If investment is x, mathematically determine the equilibrium level of income.(Hint: remember the equilibrium condition and note that the equilibrium level ofincome will be a function of x, the investment amount)Assignment 3 - ECO211c. If investment increases by 100:i.ii.Determine the change in equilibrium income using the multiplier effect.Determine the change in your equilibrium income using the equilibriumyou derived from (b). Are your answers the same?Now, enter a government that levies a tax on the consumers. The economy is still closed.Now, disposable income equals income minus taxes.d. If government spending is 500, taxes are t, and investment is x, determine theequilibrium level of income. (Hint: remember the equilibrium condition thatdesired spending = income, and remember that disposable income equals incomeminus taxes, now, your equilibrium income will be a function of x and t)e. If taxes increase by 100:i.ii.Determine the change in equilibrium income using the tax multiplier.Determine the change in equilibrium income using the equilibrium youderived from (d). Are your answers the same?

C=a+bYdConsumption functionC=2000+0.8YdIt is closed economy with no government expenditureInvestment…

Answered: Consider a consumption function given…

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Consider a consumption function given by C = 0.8Y + 2000

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Chapter1: Making Economics Decisions

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Question

Please no written by hand solutions

4. Consider a consumption function given by
C = 0.8Y + 2000
Assume first a closed economy with no government. (Then income = disposable income)
a. If investment is x, draw the aggregate expenditure function (which depicts total
consumption plus investment for every level of income). Include in your graph
the original consumption function and the aggregate expenditure function.
b. If investment is x, mathematically determine the equilibrium level of income.
(Hint: remember the equilibrium condition and note that the equilibrium level of
income will be a function of x, the investment amount)
Assignment 3 - ECO211
c. If investment increases by 100:
i.
ii.
Determine the change in equilibrium income using the multiplier effect.
Determine the change in your equilibrium income using the equilibrium
you derived from (b). Are your answers the same?
Now, enter a government that levies a tax on the consumers. The economy is still closed.
Now, disposable income equals income minus taxes.
d. If government spending is 500, taxes are t, and investment is x, determine the
equilibrium level of income. (Hint: remember the equilibrium condition that
desired spending = income, and remember that disposable income equals income
minus taxes, now, your equilibrium income will be a function of x and t)
e. If taxes increase by 100:
i.
ii.
Determine the change in equilibrium income using the tax multiplier.
Determine the change in equilibrium income using the equilibrium you
derived from (d). Are your answers the same?

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