6) Suppose the economy is closed and is characterized by the following behavioral equations: C=C₁+C₁YD Y₁ = Y-T I=b₁ + b₁Y a. 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 (c₁ + b₁ ) satisfy? Explain your answers? b. Suppose that the parameter bo, sometimes called business confidence, increases. How will the equilibrium output be affected? Will investment change by more or less than the change in

6) Suppose the economy is closed and is characterized by the following behavioral equations: C=C₁+C₁YD Y₁ = Y-T I=b₁ + b₁Y a. 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 (c₁ + b₁ ) satisfy? Explain your answers? b. Suppose that the parameter bo, sometimes called business confidence, increases. How will the equilibrium output be affected? Will investment change by more or less than the change in

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

6) Suppose the economy is closed and is characterized by the following behavioral equations:
C=C₁+C₁YD
Y₁ = Y-T
I=b₁ + b₂Y
a. 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 (c₁ +b₁ ) satisfy? Explain your answers?
b. Suppose that the parameter bo, 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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