Calculating the level of national income and the equilibrium level of income.
In a closed economy with no government sector, consumption (C) and income (Y) are related by the equation:
C= A + cY
Suppose that A = £400, c = 0.75 and the level of investment is £500:
a) At what level of national income would savings be zero?
b) Illustrate what would be the equilibrium level of income?
c) Explain how would you show what happens with equilibrium income if agents suddenly lose confidence and decide to spend less, even if their income has not changed?