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Identify the equilibrium point on graph

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1. 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.

2. Use your answer to the previous problem to calculate the MPC, MPS, government spending multiplier, and tax multiplier. Draw a graph showing the data for consumption spending, planned aggregate expenditures, and aggregate output. Be sure to identify the equilibrium point on your graph.

Reference no: EM132559066

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