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Consider a closed economy, where wages are sticky in the short run. The consumption function is C = co + c1(Y – T), where the marginal propensity to consume c¡ is equal to 0.4. Initially the economy is in equilibrium at Y = Y* and P = P°, where Pe is the price level that was expected when agents agreed their fixed nominal wage contracts. The short-run aggregate supply curve (SRAS) is horizontal. Suddenly the government increases government spending G by $300. For the following questions, if you think a variable goes up by (say) $50, just enter 50 as your answer. If you think a variable goes down by $50, enter -50 as your answer. If you think a variable doesn't change at all, enter 0 as your answer. 9. By how much will output Y change in the short run? 10. By how much will consumption C change in the short run? 11. By how much will investment I change in the short run?

Consider a closed economy, where wages are sticky in the short run. The consumption function is C = co + c1(Y – T), where the marginal propensity to consume c¡ is equal to 0.4. Initially the economy is in equilibrium at Y = Y* and P = P°, where Pe is the price level that was expected when agents agreed their fixed nominal wage contracts. The short-run aggregate supply curve (SRAS) is horizontal. Suddenly the government increases government spending G by $300. For the following questions, if you think a variable goes up by (say) $50, just enter 50 as your answer. If you think a variable goes down by $50, enter -50 as your answer. If you think a variable doesn't change at all, enter 0 as your answer. 9. By how much will output Y change in the short run? 10. By how much will consumption C change in the short run? 11. By how much will investment I change in the short run?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Consider a closed economy, where wages are sticky in the short run. The consumption function is \( C = c_0 + c_1(Y - T) \), where the marginal propensity to consume \( c_1 \) is equal to 0.4. Initially, the economy is in equilibrium at \( Y = Y^* \) and \( P = P^e \), where \( P^e \) is the price level that was expected when agents agreed their fixed nominal wage contracts. The short-run aggregate supply curve (SRAS) is horizontal. Suddenly the government increases government spending \( G \) by $300. For the following questions, if you think a variable goes up by (say) $50, just enter 50 as your answer. If you think a variable goes down by $50, enter -50 as your answer. If you think a variable doesn’t change at all, enter 0 as your answer. 9. By how much will output \( Y \) change in the short run? 10. By how much will consumption \( C \) change in the short run? 11. By how much will investment \( I \) change in the short run? 12. By how much will output \( Y \) change in the long run, after wage contracts are renegotiated? 13. By how much will consumption \( C \) change in the long run, after wage contracts are renegotiated? 14. By how much will investment \( I \) change in the long run, after wage contracts are renegotiated?
Transcribed Image Text:Consider a closed economy, where wages are sticky in the short run. The consumption function is \( C = c_0 + c_1(Y - T) \), where the marginal propensity to consume \( c_1 \) is equal to 0.4. Initially, the economy is in equilibrium at \( Y = Y^* \) and \( P = P^e \), where \( P^e \) is the price level that was expected when agents agreed their fixed nominal wage contracts. The short-run aggregate supply curve (SRAS) is horizontal. Suddenly the government increases government spending \( G \) by $300. For the following questions, if you think a variable goes up by (say) $50, just enter 50 as your answer. If you think a variable goes down by $50, enter -50 as your answer. If you think a variable doesn’t change at all, enter 0 as your answer. 9. By how much will output \( Y \) change in the short run? 10. By how much will consumption \( C \) change in the short run? 11. By how much will investment \( I \) change in the short run? 12. By how much will output \( Y \) change in the long run, after wage contracts are renegotiated? 13. By how much will consumption \( C \) change in the long run, after wage contracts are renegotiated? 14. By how much will investment \( I \) change in the long run, after wage contracts are renegotiated?
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