Assume a simple Keynesian macro model: AE = C + I C = 100 + 0.75Y I = 200 i) Find the equilibrium level of income. Show the equilibrium on a graph. ii) Calculate the simple multiplier and find the effect on the equilibrium level of income of a change in the level of planned investment from 200 to 150 by using a multiplier.

Assume a simple Keynesian macro model: AE = C + I C = 100 + 0.75Y I = 200 i) Find the equilibrium level of income. Show the equilibrium on a graph. ii) Calculate the simple multiplier and find the effect on the equilibrium level of income of a change in the level of planned investment from 200 to 150 by using a multiplier.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 4TY

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