Consider the following model of a very simple economy Househ

Consider the following model of a very simple economy. Household saving and investment behavior depend in part on wealth (accumulated sevings and inheritance). In the late 190s many were concerned with very large increases in stock values (a form of wealth) and its possible effect on saving arnd investment. The telliowing consumption function incorporates wealn ) as a determinant ot consumpton We have the tollowing intormation on consumption (C) and investment I = 200 W- 1,200 Wo are igrioring e fect hat saving adds to the stock of wealth Calculate the values of equilibrium Y, C, and saving (S) (Enteryour responses as integers) Y:?

Solution

Y = C + I

Y = 50 + 0.80Y + 0.10W + 200

0.20Y = 250 + 0.10 x 1200

0.2Y = 250 + 120

0.2Y = 370

Y = 1850

C = 50 + 0.8(1850) + 0.10(1200)

C = 50 + 1480 + 120

C = 1650

S = Y - C = 1850 - 1650

S = 200