# Worksheet 4 - Answer Key - Spring 2010 Introductory...

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Spring 2010 – Introductory Macroeconomics – Econ 104a,c,d,e,f - Voorheis Answer Key Worksheet 4 – Keynesian Model of the Economy 1. Consider a closed, simple economy (not necessarily at full employment) with no government, characterized by the following equations, (C is Consumption, PDI is personal disposable Income, and I is Investment): C = 200 + .75(PDI) I = 300 a. Using the Graph below, graph the Consumption Function, Investment, and Aggregate Expenditures. AE 500 200 100 0 Y = Income 800 b. On the Graph, label the point where Savings = 0, the point of equilibrium income. Then, derive the values for these using the equations above. PDI=C+S, S=0 When S≠0, then C+I = Y PDI=200+0.75PDI 200+0.75Y + 300= Y 0.25PDI=200 500=0.25Y PDI=800 Y=2000 C=PDI=800 since S=0 Savings = 0, Income = _800________ Equilibrium Income = _2000________ c. At Equilibrium, how much are consumers saving? Investment? Equilibrium Savings = _300________

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Worksheet 4 - Answer Key - Spring 2010 Introductory...

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