Consider the following model of a very simple economy. Household saving and investment behavior depend in part on wealth (accumulated savings and inheritance). In the late 1990s many were oncerned with very large increases in stock values (a form of wealth) and its possible effect on saving and investment. The following consumption function incorporates wealth (W) as a determinant of consumption. We have the following information on consumption (C) and investment (1): • C= 40 +0.75Y+0.07W • 1 = 100 • W = 1,000 We are ignoring the fact that saving adds to the stock of wealth. Calculate the values of equilibrium Y, C, and saving (S). (Enter your responses as integers.) = $ 840 C = $ 740 6= $ 100 uppose that wealth increases by 60 percent. Calculate the values of equilibrium Y, C, and S. (Enter your responses as integers.) New Y = $
Consider the following model of a very simple economy. Household saving and investment behavior depend in part on wealth (accumulated savings and inheritance). In the late 1990s many were oncerned with very large increases in stock values (a form of wealth) and its possible effect on saving and investment. The following consumption function incorporates wealth (W) as a determinant of consumption. We have the following information on consumption (C) and investment (1): • C= 40 +0.75Y+0.07W • 1 = 100 • W = 1,000 We are ignoring the fact that saving adds to the stock of wealth. Calculate the values of equilibrium Y, C, and saving (S). (Enter your responses as integers.) = $ 840 C = $ 740 6= $ 100 uppose that wealth increases by 60 percent. Calculate the values of equilibrium Y, C, and S. (Enter your responses as integers.) New Y = $
Chapter8: The Keynesian Model
Section: Chapter Questions
Problem 6SQ
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