Consider a Keynesian consumption function with desired consumption equal to 0.9 Y, where Y is income. Government purchases are $1000, net exports are zero, and desired investment varies with real interest rate according to the following schedule: $$\begin{array} { c c }
r & I d \
5 \% & \$ 3000 \
4 \% & 3500 \
3 \% & 4000 \
2 \% & 4500
\end{array}$$ Assume the interest rate adjusts so that the economy gets to equilibrium. Equilibrium output at full employment is $50,000. Find the values of consumption, investment, and the real interest rate at full-employment equilibrium.

Question

Consider a Keynesian consumption function with desired consumption equal to 0.9 Y, where Y is income. Government purchases are $1000, net exports are zero, and desired investment varies with real interest rate according to the following schedule: $$\begin{array} { c c } 
r & I d \
5 \% & \$ 3000 \
4 \% & 3500 \
3 \% & 4000 \
2 \% & 4500
\end{array}$$ Assume the interest rate adjusts so that the economy gets to equilibrium. Equilibrium output at full employment is $50,000. Find the values of consumption, investment, and the real interest rate at full-employment equilibrium.

Quizplus · Accepted Answer

The Answer of Consider a Keynesian consumption function with desired consumption equal to 0.9 Y, where Y is income. Government purchases are $1000, net exports are zero, and desired investment varies with real interest rate according to the following schedule: $$\begin{array} { c c } 
r & I d \
5 \% & \$ 3000 \
4 \% & 3500 \
3 \% & 4000 \
2 \% & 4500
\end{array}$$ Assume the interest rate adjusts so that the economy gets to equilibrium. Equilibrium output at full employment is $50,000. Find the values of consumption, investment, and the real interest rate at full-employment equilibrium.

Consider a Keynesian Consumption Function with Desired Consumption Equal to 0.9