Assume a simple economy with no foreign and no government sector. The model is:
C = a + b Y
TE = C + I
Where a = 100, b = .75, and I = 200.
1. Make a graph when the consumption function using 4 values of Y.
2. In a separate graph, diagram the Total Expenditures schedule.
3. Determine the equilibrium level of national product. Calculate the level of consumption at the equilibrium Y?
4. What would the level of Total Expenditures be? If actual output was 1000, what would the level of consumption be? Explain the process that would lead the economy back to equilibrium.