Suppose that for a particular economy, for some time period, consumption was given by the consumption function C = 300 + 0.9YD, investment was equal to 200, government expenditure was equal to 100, net taxes were fixed at 100, exports were equal to 200, and imports were given by the imports function Z = 10 + 0.1YD. Note that YD represents disposable income. a.Suppose households earn $150 more in their disposable income. How much more would they consume in total? How much go to domestic goods and how much go to imported goods? How much would they end up saving? b.What is the level of equilibrium income? What about the level of consumption and import? c.What are the values of the government spending multiplier, tax multiplier and balanced-budget multiplier?
Suppose that for a particular economy, for some time period, consumption was given by the
consumption function C = 300 + 0.9YD, investment was equal to 200, government expenditure was
equal to 100, net taxes were fixed at 100, exports were equal to 200, and imports were given by the
imports function Z = 10 + 0.1YD. Note that YD represents disposable income.
a.Suppose households earn $150 more in their disposable income. How much more would they
consume in total? How much go to domestic goods and how much go to imported goods? How
much would they end up saving?
b.What is the level of equilibrium income? What about the level of consumption and import?
c.What are the values of the government spending multiplier, tax multiplier and balanced-budget
multiplier?
d.Suppose the investment level suddenly declined by 20. How should the government stabilize the
economy? Please provide all options in detail
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