Assume in a simple economy that the level of saving is -500 when aggregate output equals zero and that the margina! propensity to save is 0.2. Derive the saving function and the consumption function, and draw a graph showing these func- tions. At what level of aggregate output does the consumption curve cruss the 45° line? Explain your answer and show this on the graph.

Assume in a simple economy that the level of saving is -500 when aggregate output equals zero and that the margina! propensity to save is 0.2. Derive the saving function and the consumption function, and draw a graph showing these func- tions. At what level of aggregate output does the consumption curve cruss the 45° line? Explain your answer and show this on the graph.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 2TY

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