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Decision to Invest: ■ ■ Since the economy is closed, Country X cannot borrow. Therefore, to invest, it must reduce its consumption by 34 units in period 0. After investing, output increases by 10 units each period, providing additional consumption potential in the future. Consumption in Period 0: Initial output = 100 units. ■ Investment = 34 units. ■ Therefore, consumption in period 0 100 - 34 = = 66units. Consumption in Period 1 and Beyond: ◉ Starting from period 1, Country X's output increases by 10 units. New output per period = 100+ 10 = 110units. ■ Since the economy is closed and consumes all output, consumption in period 1 and beyond is 110units.

Decision to Invest: ■ ■ Since the economy is closed, Country X cannot borrow. Therefore, to invest, it must reduce its consumption by 34 units in period 0. After investing, output increases by 10 units each period, providing additional consumption potential in the future. Consumption in Period 0: Initial output = 100 units. ■ Investment = 34 units. ■ Therefore, consumption in period 0 100 - 34 = = 66units. Consumption in Period 1 and Beyond: ◉ Starting from period 1, Country X's output increases by 10 units. New output per period = 100+ 10 = 110units. ■ Since the economy is closed and consumes all output, consumption in period 1 and beyond is 110units.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter5: Business And Economic Forecasting
Section: Chapter Questions
Problem 2E
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Decision to Invest: ■ ■ Since the economy is closed, Country X cannot borrow. Therefore, to invest, it must reduce its consumption by 34 units in period 0. After investing, output increases by 10 units each period, providing additional consumption potential in the future. Consumption in Period 0: Initial output = 100 units. ■ Investment = 34 units. ■ Therefore, consumption in period 0 100 - 34 = = 66units. Consumption in Period 1 and Beyond: ◉ Starting from period 1, Country X's output increases by 10 units. New output per period = 100+ 10 = 110units. ■ Since the economy is closed and consumes all output, consumption in period 1 and beyond is 110units.
Transcribed Image Text:Decision to Invest: ■ ■ Since the economy is closed, Country X cannot borrow. Therefore, to invest, it must reduce its consumption by 34 units in period 0. After investing, output increases by 10 units each period, providing additional consumption potential in the future. Consumption in Period 0: Initial output = 100 units. ■ Investment = 34 units. ■ Therefore, consumption in period 0 100 - 34 = = 66units. Consumption in Period 1 and Beyond: ◉ Starting from period 1, Country X's output increases by 10 units. New output per period = 100+ 10 = 110units. ■ Since the economy is closed and consumes all output, consumption in period 1 and beyond is 110units.
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