Here we investigate a particular example of the model studied in Sections 9-2 and 9-3 with no government. Suppose the consumption function is given by C 100 .8 Y , while investment is given by I 50.
a. What is the equilibrium level of income in this case?
b. What is the level of saving in equilibrium?
c. If, for some reason, output is at the level of 800, what will the level of involuntary inventory accumulation be?
d. If I rises to 100 (we discuss what determines I in later chapters), what will the effect be on the equilibrium income?
e. What is the value of the multiplier, , here?
f. Draw a diagram indicating the equilibria in both ( a ) and ( d ).