Assume the economy is closed and there is no government. The aggregate demand components are described below:C = 100 + 0.6Y (1)I = 200 (2)There is a boost in investment making total investment now 300. What would happen if the marginal propensity to consume increases to 0.8? What is the income of equilibrium?

In a closed economy with no government, aggregate demand (AD) is the sum of consumption (C) and investment (I). Initially, the consumption function is C = 100 + 0.6Y and investment is I = 200.

1. First, let's calculate the initial equilibrium income. The equilibrium condition in this economy is Y = C + I. Substituting the given functions into this condition gives us:

   Y = 100 + 0.6Y + 200 0.4Y = 300 Y = 300 / 0.4 Y = 750

So, the initial equilibrium income is 750.

2. Now, let's consider the boost in investment from 200 to 300. The new investment function is I = 300. Substituting the new I and the initial C into the equilibrium condition gives us:

   Y = 100 + 0.6Y + 300 0.4Y = 400 Y = 400 / 0.4 Y = 1000

So, the new equilibrium income after the boost in investment is 1000.

3. Finally, let's consider the increase in the marginal propensity to consume from 0.6 to 0.8. The new consumption function is C = 100 + 0.8Y. Substituting the new C and the new I into the equilibrium condition gives us:

   Y = 100 + 0.8Y + 300 0.2Y = 400 Y = 400 / 0.2 Y = 2000

So, the new equilibrium income after the increase in the marginal propensity to consume is 2000.

In conclusion, an increase in investment and the marginal propensity to consume leads to an increase in the equilibrium income.