Assuming that there is no government spending or trade, an economy’s GDP is the sum of domestic consumption C and investment I, i.e. Y = C+ I Assume that I is unaffected by GDP Assume the consumption function is C = c0 + c1Y In any equilibrium aggregate demand, AD must be equal to Y, GDP. Given this model, which FIVE of the following statements are correct? Select one or more: A. If the economy above is a demand-driven economy, then the equilibrium solution for Y is given by Y = m(c0 + I), where m = 1/(1 - c1) is the multiplier. B. if c1 = 0.8 the multiplier is equal to 1/0.8= 1.25 C. if c1 = 0.75 the multiplier is equal to 4 D. assume c0 =100, I=50, c1=0.6. The equilibrium value of Y in a demand-driven economy is 300. E. Assume that Y is initially 400, I is initially 100, and the multiplier is 2.5. I increases by 10%. The multiplier implies that in equilibrium Y will increase by 25%. F. The higher is c1 the larger is the multiplier G. If consumers attempt to save more, by reducing their autonomous consumption, in a demand-driven economy this will cause output to fall. H. If consumers attempt to save more, by reducing their autonomous consumption, in a demand-driven economy this will cause their saving ratio to rise (where the saving ratio is given by S/Y, and S=Y-C)
Assuming that there is no government spending or trade, an economy’s
Assume that I is unaffected by GDP
Assume the consumption function is C = c0 + c1Y
In any equilibrium aggregate
Given this model, which FIVE of the following statements are correct?
Select one or more:
If the economy above is a demand-driven economy, then the equilibrium solution for Y is given by Y = m(c0 + I), where m = 1/(1 - c1) is the multiplier.
if c1 = 0.8 the multiplier is equal to 1/0.8= 1.25
if c1 = 0.75 the multiplier is equal to 4
assume c0 =100, I=50, c1=0.6. The equilibrium value of Y in a demand-driven economy is 300.
Assume that Y is initially 400, I is initially 100, and the multiplier is 2.5. I increases by 10%. The multiplier implies that in equilibrium Y will increase by 25%.
The higher is c1 the larger is the multiplier
If consumers attempt to save more, by reducing their autonomous consumption, in a demand-driven economy this will cause output to fall.
If consumers attempt to save more, by reducing their autonomous consumption, in a demand-driven economy this will cause their saving ratio to rise (where the saving ratio is given by S/Y, and S=Y-C)
Step by step
Solved in 4 steps with 10 images
