ECO 203
PROBLEM SET 4

Let the following relations represent a simple model of an economy:
 
 Y = C + I + G + X - M
 
 C = 150 + 0.7DI, where DI = Y - T
 I = 250
   G = 0 
    T = 0
 X = 100
 M = 50
 
1. How much is equilibrium level of income (Y)?
 
 
 
 
 
 
 
 
2. What is MPS for the economy in question 1?
 
 
 
 
 
 
 
3. How much is consumption at equilibrium?
 
 
 
 
 
 
 
4. Which of the following represents the saving function for the economy in question 1?
 
 
 
 
 
 
 
 
Now consider the model of another economy portrayed by the following equations and answer questions 5-8.
 
 Y = C + I + X - M
 
 C = 250 + 0.6Y
 
 I = 200
 
 X = 100
 
 M = 150
 
5. How much is equilibrium level of GDP?
 
 
 
 
 
 
 
6. How much saving is there in equilibrium?
 
 
 
 
 
 
 
 
7. By how much is this economy suffering from expansionary or contractionary gap, if potential GDP = 2500?
 
 ECO 203