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In our simple model if C 100 08y and I 50 equilibrium output will be 2 If in Exercise 31 I increase to 100 The equilibrium income will be

In our simple model, if C = 100 + 0.8y, and I = 50, equilibrium output will be ______. 2. If in Exercise 3.1 I increase to 100, a. The equilibrium income will be ______. b. The multiplier is ______. 3. If the marginal propensity to save is 0.3, the MPC must be ______. 4. If the MPC decreases, the multipliers will ______. 5. Estimating Changes in Aggregate Demand. a. Suppose C = Ca + 0.6y and that a shock decreases Ca by $10 billion. By how much will equilibrium income decrease? b. An economy has an MPC of 0.6. By how much will a $10 billion increase in government purchases increase equilibrium income? By how much will a $10 billion increase in taxes decrease equilibrium income? 6. The Paradox of Thrift. The United States has instituted many policies to attempt to increase savings rates in the United States. One such policy was the creation of individual retirement accounts and other incentives for savings. An implication of the income expenditure model is that an increase in the desire of consumers to save will not necessarily lead to higher savings. In fact, total savings will either remain the same or perhaps fall. This is known as the paradox of thrift. Let s see why this is true with an example. a. Suppose I equals 40 and the savings function is S = 100 + 0.4y. Equilibrium income, y, in the economy is 350. Now suppose consumers wish to increase their savings; the new savings function becomes S = 80 + 0.4y. Calculate the new level of equilibrium output and

Apr 06 2020 Read more Less More

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