ECON220 Dvc Diablo Valley College Consumption Function Equilibrium Questions Fill in the answers and submit.For the graph , which you will have done on gra
ECON220 Dvc Diablo Valley College Consumption Function Equilibrium Questions Fill in the answers and submit.For the graph , which you will have done on graph paper (no computer generated graphs accepted), you could upload as a file or you could take a picture of the graph and post the graph. It is important to make the graph large enough to show all the information and make sure that the graph is clear and neat. Messy graphs will not be accepted. Chapter 12- Consumption function equilibrium
1- The economy is at equilibrium when GDP is = $1000
a. The MPS= .25
b. Your investment is = $50
Answer the following questions based on the information above:
1-a: How large is the multiplier?________________________________
1-b: What will be the new equilibrium GDP?______________________
1-c: If full employment equilibrium would be at $1600, then how much should government spending
increase (after the $50 investment) to get to that point?________________________
2- The economy is at equilibrium at GDP= $2000. When investments increase by $100, the new
GDP= $2500
Answer the following questions based on the information above:
2-a: What is the multiplier?___________________________
2-b: What is the MPS?_______________________________
2-c: What is the MPC?_______________________________
2-d: What is the slope of the consumption function?_______
Answer sheet. Show calculations
1-a=___________________________________________________________________________
1-b=___________________________________________________________________________
1-c=___________________________________________________________________________
2-a=_____________________________________________________________________________
2-b=_____________________________________________________________________________
2-c=______________________________________________________________________________
2-d=______________________________________________________________________________
Continue to the questions below.
3- Using the equation( C= a + bY) where Y= GDP
a. Fill out the table below
= C= 100 + .8Y
___________________________________________________________________________
GDP
Consumption
Savings
0
100
200
300
400
500
600
700
800
b. Using graph paper plot the function C= 100+ .8Y (see figure 12-3 and 12-4 and 12-6). You
should plot a 45 degree reference line that will show equality between GDP (income)
and consumption. Equilibrium will happen where the consumption function crosses the
45 degree line. NO COMPUTER GENERATED GRAPHS ACCEPTED.
At what level of GDP will your economy be at equilibrium?__________
c. At the bottom of the graph you should also plot the savings function. This will represent
savings at the different GDP levels (upward sloping).
d. Add autonomous investments of $100 to the consumption function (you will raise the
consumption function by a constant $100-)
e. At the bottom of the graph plot a horizontal line at $100 which represents an
autonomous investment.
f. At what GDP level will you be at equilibrium after adding the investment
function?______
g. At that point how large is investment?____________________
h. At that point how large are savings?_____________________
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