One other factor that affects the Consumption and saving behavior is household Wealth (accumulated savings and inheritance), but our simple Keynesian model doesn’t incorporate this effect. Consider the following model of a very simple closed economy: 1- C= 10 +0.75 Y + 0.6 W 2- I= 200 3- W= 1000 4- Y=C+I 5- S=Y-C,6- AE = Y %3D If you assume that wealth (W) and Investment (I) remain constant (we are ignoring the fact that saving adds to the stock of wealth) then answer the following questions a- What are the equilibrium levels of GDP (Y), consumption (C) and Saving (S)?

One other factor that affects the Consumption and saving behavior is household Wealth (accumulated savings and inheritance), but our simple Keynesian model doesn’t incorporate this effect. Consider the following model of a very simple closed economy: 1- C= 10 +0.75 Y + 0.6 W 2- I= 200 3- W= 1000 4- Y=C+I 5- S=Y-C,6- AE = Y %3D If you assume that wealth (W) and Investment (I) remain constant (we are ignoring the fact that saving adds to the stock of wealth) then answer the following questions a- What are the equilibrium levels of GDP (Y), consumption (C) and Saving (S)?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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