Answered: Consider a model of the Goods Market…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Supposeg1increases, but stillc1+b1+g1<1. Using a graph of the goods market, show how we would represent an increase in the value ofg1on equilibrium output y. Be sure to label all axes, curves, and equilibrium points.

Suppose instead,c1+b1+g1= 0. Is the equilibrium in the goods market still possible? If so, what is the equilibrium output? You must explain your answer to receive full credit.

Consider a model of the Goods Market characterized by the following equations:
Z = C+I+G
Y
C+I+G
C
co + c1 (Y – T)
bo + bịY
G
go + gıY
where b1, c1, gi are between 0 and 1, and c1 + b1 + g1 < 1. Assume T is exogenous.

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