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

Macroeconomics: Principles and Policy (MindTap Course List)

13th Edition

ISBN:9781305280601

Author:William J. Baumol, Alan S. Blinder

Publisher:William J. Baumol, Alan S. Blinder

Chapter8: Aggregate Demand And The Powerful Consumer

Section: Chapter Questions

Problem 3TY

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