4) Suppose the economy is closed and is characterized by the following behavioral equations: C=q₂ +GY Y₂=Y-T 1=b₂ + b₂Y a. b. C. Government spending and taxes are constant. Suppose that consumers decide to consume less (and therefore to save more) for any given amount of disposable income. Specifically assume that consumer confidence () falls. What will happen to output? As a result of the effect on output you determined in part (a), what will happen to investment? What will happen to public saving? What will happen to private saving? Explain. What is the effect on consumption? Suppose that consumers had decided to increase consumption expenditure, so tha Co had increased. What would have been the effect on output, investment, and private saving in this case? Explain. What would have been the effect on consumption?

4) Suppose the economy is closed and is characterized by the following behavioral equations: C=q₂ +GY Y₂=Y-T 1=b₂ + b₂Y a. b. C. Government spending and taxes are constant. Suppose that consumers decide to consume less (and therefore to save more) for any given amount of disposable income. Specifically assume that consumer confidence () falls. What will happen to output? As a result of the effect on output you determined in part (a), what will happen to investment? What will happen to public saving? What will happen to private saving? Explain. What is the effect on consumption? Suppose that consumers had decided to increase consumption expenditure, so tha Co had increased. What would have been the effect on output, investment, and private saving in this case? Explain. What would have been the effect on consumption?

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

4) Suppose the economy is closed and is characterized by the following behavioral equations:
a.
b.
C.
d.
C=C₂+GY₂
Y₂ = Y-T
1=b₂ + b₂Y
Government spending and taxes are constant. Suppose that consumers decide to
consume less (and therefore to save more) for any given amount of disposable income.
Specifically assume that consumer confidence () falls. What will happen to output?
As a result of the effect on output you determined in part (a), what will happen to
investment? What will happen to public saving? What will happen to private saving?
Explain. What is the effect on consumption?
Suppose that consumers had decided to increase consumption expenditure, so that
Co had increased. What would have been the effect on output, investment, and private
saving in this case? Explain. What would have been the effect on consumption?
Comment on the following logic: "when output is too low, what is needed is an
increase in demand for goods and services. Investment is one component of demand, and
saving equals investment. Therefore if the government could just convince households to
attempt to save more then investment, and output, would increase.

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