Assume that when an economy has a GDP of $500, Consumption is $550. The MPC is .75. Investment is 25. Begin the problem by setting up an Income/Consumption Schedule like the one on page 220 of your text. Set up only the first two columns (1) and (2).
Graph the Consumption Function.
Add Investment to the graph.
What is the multiplier? (Use the formula on page 233)
What is the Break-Even level of Income? (Do not include Investment)
What is the Equilibrium level of Income? (Include Investment)
What would be the new equilibrium in this economy if Investment increased by $12?
The last question is where I need help. If I chart the investment at an increase of $12, there is no equilibrium achieved. How can I calculate the new equilibrium?