I need serious help. my homework is due in an hour and I have this question and its follow ons as well as two more.

Suppose the initial conditions of the economy are characterized by the following equations. In this problem, we assume that prices are fixed at 1 (the price index is 100 and when we deflate, we use 1.00) so that nominal wealth equals real wealth.

1) C = a0 + a1 (Y-T) + a2 (WSM) + a3 (WRE) + a4 (CC) + a5 (r)

1') C = a0 + a1 (Y-200) + a2 (10,000) + a3 (15,000) + a4 (100) + a5 (3)

2) I = b0 + b1AS + b2CF + b3 (r)

2') I = b0 + b1 (160) + b2 (1800) + b3 (3)

3) G = G

3') G = 400

4) X-M = X-M

4') X-M = -200

Where: a0 = 200, a1 = .80, a2 = .05, a3 = .10, a4 = .8, a5 = -500, b0 = 300, b1 = .5, b2 = .5, b3 = -200

Derive an expression for the consumption function and graph it on your exam sheet. Show all work.

#### Top Answer

C = a0 + a1 (Y - 400) + a2 (10,000) + a3 (15,000) + a4 (100) + a5 (3) = 300 + 0.8 x (Y - 400) + 0.05 x... View the full answer