1. Graph the consumption and savings functions:
C = 100 + 0.6Y and S = -100 + 0.4Y
a) What is the equilibrium level of national income?
b) If autonomous investments of 150 occurred, graph the new C + I function of AD = 250 + 0.6Y.
c) What is the new equilibrium level of national income?
d) What is the value of the investment multiplier?
2. Suppose that in an economy a $40m increase in consumption leads a $200m increase in national income. Calculate the value of this economy's marginal propensity of save. (Show working).