Anonymous
Anonymous asked in Social ScienceEconomics · 10 years ago

If consumption function in a 2-sector model is C=100...?

If consumption function in a 2-sector model is C=100 + 0.80Y and I = 20 Billion; where C is consumption, Y is income and I is investment,

a. Equilibrium income equal to:___________

b. Saving function is:__________

c MPC is:__________

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  • Anonymous
    10 years ago
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    I assume by two sector you mean house hold sector and business sector.

    In this case use the accounting identity Y=C+I+G

    Y=100+(8/10)Y+20+G

    (2/10)Y=120+G

    Y=(10/2)*(120+G)

    Y=600+G

    If G=0 then Y=600. Output is equal to income. So income is then equal to 600

    The savings function is S=Y-C-G so S= Y-(100+(8/10)Y)=600-(100+(8/10)600)=20

    MPC=dC(y)/dy =.8

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