3) Suppose the economy is closed and is characterized by the following behavioral equations: C=C₁ + a₂Y₂ Y₂ = Y-T l=b₂ + b₁Y Government spending and taxes are constant. Solve for the equilibrium output. What is the value of the multiplier? How does the relationship between investment and output affect the value of the multiplier as compared to the case when investment was exogenous? For the multiplier to be positive what condition must ( G + b) satisfy? Explain your answers? a. b. Suppose that the parameter bo, sometimes called business confidence, increases. How will C. the equilibrium output be affected? Will investment change by more or less than the change in bo? Why? What will happen to national saving?

3) Suppose the economy is closed and is characterized by the following behavioral equations: C=C₁ + a₂Y₂ Y₂ = Y-T l=b₂ + b₁Y Government spending and taxes are constant. Solve for the equilibrium output. What is the value of the multiplier? How does the relationship between investment and output affect the value of the multiplier as compared to the case when investment was exogenous? For the multiplier to be positive what condition must ( G + b) satisfy? Explain your answers? a. b. Suppose that the parameter bo, sometimes called business confidence, increases. How will C. the equilibrium output be affected? Will investment change by more or less than the change in bo? Why? What will happen to national saving?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

3) Suppose the economy is closed and is characterized by the following behavioral equations:
C=C₁₂ +G₁Y₂
Y₂=Y-T
1=b₂ + b₂Y
a. Government spending and taxes are constant. Solve for the equilibrium output.
b. What is the value of the multiplier? How does the relationship between investment and
output affect the value of the multiplier as compared to the case when investment was
exogenous? For the multiplier to be positive what condition must ( + b) satisfy? Explain your
answers?
bo
C.
Suppose that the parameter
sometimes called business confidence, increases. How will
the equilibrium output be affected? Will investment change by more or less than the change in
bo?
'Why? What will happen to national saving?

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