In a simple economy with no foreign sector, the following equations apply:
| Consumption function | C=2,500+0.80 × (Y-T) |
| Investment function | I=500+0.30 × Y-25× r |
| Government spending | G=1,000 |
| Tax function | T=-250+0.30×Y |
| Y: Aggregate income r: Real interest rate | |
If the real interest rate is 3% and government spending increases to 2,000, the increase in aggregate income will be closest to:
C is correct.
