Statistics Solutions

[Solution Library] The consumption function for the People’s Republic of Dyspepsia is C = 150 + 0.75Y, where C=Consumption and Y=Income. Investment is fixed

Question: The consumption function for the People’s Republic of Dyspepsia is C = 150 + 0.75Y, where C=Consumption and Y=Income. Investment is fixed at 50 (all figures are in billions). We also know that: AE = C + I and AE = Y. Given this:

  1. What are the MPC and MPS in Dyspepsia?
  2. Graph AE = C + I and AE = Y. Show the equilibrium level of income on your graph. Solve for the equilibrium level of income algebraically.
  3. What happens to inventories if Y=700?
  4. Suppose Investment rises to 75. What happens to the equilibrium level of income?
  5. What is the multiplier?

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Solution: The downloadable solution consists of 2 pages
Deliverable: Word Document


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