In a model with no government or foreign sector, if saving is defined as S = - 200 + (0.1)Y and investment is I? = 200, what is the equilibrium level of consumption?

Question

Quizplus · Accepted Answer

In this model, equilibrium occurs when saving (S) equals investment (I). Given S = -200 + (0.1)Y and I = 200, setting S equal to I gives -200 + (0.1)Y = 200. Solving for Y gives Y = 4000. Consumption (C) is typically defined as Y - S. Substituting Y = 4000 into the saving function gives S = -200 + (0.1)(4000) = 200. Therefore, C = Y - S = 4000 - 200 = 3800.

In a Model with No Government or Foreign Sector, If