9. Investment and income This problem examines the implications of allowing investment to depend on output. Chapter 5 carries this analysis much further and introduces an essential relation-the effect of the interest rate on investment-not examined in this problem. a. Suppose the economy is characterized by the following behavioral equations: C=C₁ + C₁YD YD=Y-T 1= b+b₁Y Government spending and taxes are constant. Note that investment now increases with output. (Chapter 5 discusses the reasons for this relation.) Solve for equilibrium output. b. What is the value of the multiplier? How does the relation between investment and output affect the value of the multiplier? For the multiplier to be positive, what condition must (c₁ + b₁) satisfy? Explain your answers. c. What would happen if (c + b₁)>rl? (Trick question. Think about what happens in each round of spending).

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?

Solve part (f) and part (g).

19

3 Use Lagrange multipliers to find expressions for x, and x, which maximize the utility function U =x}? + x}? subject to the general budgetary constraint Px, + Px, = M

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…

E2

1- Suppose that the economy is characterized by the following behavioral equations: C= 160 +0.7YD, T= 100, 1= 150. NX = 100 – 0.1Y. G=150, a What is disposable income (YD)? b. What is equilibrium GDP (Y)? c. What is consumption spending at the equilibrium (C)? d. What is the value of multiplier? e. If government spending increases by 100 units how much does equilibrium income change? f If government increases both taxes and government spending by 100 units how much does equilibrium income change? g. If this was a closed economy (NX-0), what would be the value of multiplier? Compare with the value you obtained previously for the open economy, and comment on why they are different. ICtrl) -

12

I need answers of  g,h,i. Thanks in advance.