Please show me how to calculate these problems by showing your work step by step

Question

Please show me how to calculate these problems by showing your work step by step and telling me how you got each answer.

You are given the following data concerning Freedonia, a legendary country:

(1) Consumption function: C = 1000 + 0.95Y

(2) Investment function: I = 400

(3) AE = C + I

(4) AE = Y

                a. What is the marginal propensity to consume and the marginal propensity to save?

                b. Solve for equilibrium income.

                c. Suppose the second equation is changed to I = 500. What is the new equilibrium level of income? How much does the $100 increase in investment change equilibrium GDP?

d. Calculate the saving function.

Explanation / Answer

consumption function i.e. C=C0 +bY WHERE C IS THE TOTAL CONSUMPTION, C0 is the autonomous consumption, bY is the induced consumption, b is the marginal propensity to consume

so in this current case consumption function is C= 1000+.95Y

HERE 1000 IS THE AUTONOMOUS CONSUMPTION, b(MARGINAL PROPENSITY TO CONSUME)= .95

SINCE MPC(marginal propensity to consume)+ MPS( marginal propensity to save)=1

.95+MPS=1

THEREFORE MPS = 1-.95= .05

Y =

b) WE KNOW THAT AT EQUILIBRIUM , AGGRGATE DEMAND = INCOME(AGGREGATE OUTPUT)

i.e., C+I=Y SUBTITUTING THE VALUES OF C AND I we get

1000+.95Y+400=Y

1400+.95Y=Y

(1-.95)Y= 1400

Y=1400/.05 = 28000

SO EQUILIBRIUM LEVEL OF INCOME IS 28000

c) now incase of I=500

C+I =Y

1000+.95Y+500 =Y

1500+.95Y=Y

(1-.95)Y = 1500

Y= 1500/.05=30000

$100 INCREASE IN INVESTMENT LEADS TO $2000 INCREASE IN GDP.

d)

SAING FUNCTION

WE KNOW THAT S= Y-C

SO SUBSTITUTING THE VALUE OF C IN THE ABOVE SAVING FUNCTION

S = Y-(1000+.95Y)

S = Y-1000- .95Y

S= -1000+ (1 - .95)Y

S= -1000+.05Y

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