Given the national income model Y=C+I+G. C=400+0.72Y; I=100 and G=90 a) Obtain the equilibrium level of output and the size of multiplier? b) By how much will output increase when investment spending increases by 50%? Graphically demonstrate your answer in (a) c) How will your answers in (a)–(b) change if the consumption function is now given as C = 400 + 0.72Yd where Yd = Y – T and the tax function is given as T = 40 + 0.15Y?
Given the national income model Y=C+I+G. C=400+0.72Y; I=100 and G=90
a)
Obtain the equilibrium level of output and the size of multiplier?
b)
By how much will output increase when investment spending increases by 50%? Graphically demonstrate your answer in (a)
c)
How will your answers in (a)–(b) change if the consumption function is now given as C = 400 + 0.72Yd where Yd = Y – T and the tax function is given as T = 40 + 0.15Y?
The national income in a closed economy can be calculated as the sum of consumption spending, investment spending, and government spending. The changes in any of these three factors will result in a change in the national income.
The change in the national income or the output caused by a unit change in one of these factors is given by the multiplier. The multiplier can be calculated as the ratio of one and the marginal propensity to save.
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