Let a macroeconomic model be of the following form:
C = a + bYD a = 10
T = T0 b = 4/5
G = G0 G0 = 10
I = I0 I0 = 10
YD = Y - T0 T0 = 10
(a) Calculate the equilibrium levels of national income (Y), consumption (C) and Savings (S).
(b) Graph the above model representing both equilibrium conditions by separate graphs. That is,Y = C + I + G, and Total withdrawals = Total injections by graphing C and C + I functions separately as well as the aggregate expenditure function, C + I + G on the same graph paper. Similarly, graph the S function by itself and S + T0 on a separate graph paper. Label all the slopes and intercepts. Make sure to present schedules.
(c) If "a" in the consumption function were to increase by 5, G were to increase by 10 T0 were to increase by 10, calculate the separate as well as the total net effect of these changes on Y.