just c) subpart only please Consumption and lags.Consider a closed-economy aggregate expenditure model where the current period'sconsumption depends on the disposable income earned in the previous period; that is, wehave the following representation of the economy as:Ct = Co + C₁YD.t-1)YD.t = Y₂ - T₂,1₂ = 1,Zt = Ct + It + Gt. Also, in equilibrium, aggregate supply equals aggregate demand, that isYt = Zt.The parameters, co, I, and c₁, do not change over time and have the values co = 125, I= 50,C₁ = 0.8.(a) Suppose G: = T: = 125, for all t < 10. Find the steady state (where all variables aretime-independent) level of output associated with these parameter values. Assume thatthe economy is at this steady state, for t < 10.(b) At t = 10, suppose government spending increases to G: = 140, and remains at thislevel forever. There is no change in taxation. Find the steady-state output associated withthis new level of government spending.(c) Calculate the (equilibrium) values for Y₁, for t= 10, 11, 12, 13. Here you are beingasked to calculate the path from the old equilibrium to the new equilibrium.

The economy is in equilibrium when the aggregate demand is equal to the aggregate supply. At this…

Answered: (c) Calculate the (equilibrium) values…

(c) Calculate the (equilibrium) values for Y₁, for t= 10, 11, 12, 13. Here you are being asked to calculate the path from the old equilibrium to the new equilibrium.

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

just c) subpart only please

Consumption and lags.
Consider a closed-economy aggregate expenditure model where the current period's
consumption depends on the disposable income earned in the previous period; that is, we
have the following representation of the economy as:
Ct = Co + C₁YD.t-1)
YD.t = Y₂ - T₂,
1₂ = 1,
Zt = Ct + It + Gt.

Also, in equilibrium, aggregate supply equals aggregate demand, that is
Yt = Zt.
The parameters, co, I, and c₁, do not change over time and have the values co = 125, I= 50,
C₁ = 0.8.
(a) Suppose G: = T: = 125, for all t < 10. Find the steady state (where all variables are
time-independent) level of output associated with these parameter values. Assume that
the economy is at this steady state, for t < 10.
(b) At t = 10, suppose government spending increases to G: = 140, and remains at this
level forever. There is no change in taxation. Find the steady-state output associated with
this new level of government spending.
(c) Calculate the (equilibrium) values for Y₁, for t= 10, 11, 12, 13. Here you are being
asked to calculate the path from the old equilibrium to the new equilibrium.

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