Suppose that the consumer’s consumption demand function is given by Cd(r) = 0.8(Y−T)+10−10r. Investment is Id(r) = 20 − 10r, government expenditure is G = 10, and tax is T = 10. The output supply is given by Ys(r) = 100 + 100r.Derive the output demand curve.What is the equilibrium GDP (income) and interest rate?Suppose that government expenditure increases by 10 units while tax also increases by 10 units. How will GDP change? What is the multiplier?

Output demand is a sum of spending by consumers, businesses and government

Answered: Suppose that the consumer’s consumption…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that the consumer’s consumption demand function is given by Cd(r) = 0.8(Y−T)+10−10r. Investment is Id(r) = 20 − 10r, government expenditure is G = 10, and tax is T = 10. The output supply is given by Ys(r) = 100 + 100r.

Derive the output demand curve.
What is the equilibrium GDP (income) and interest rate?
Suppose that government expenditure increases by 10 units while tax also increases by 10 units. How will GDP change? What is the multiplier?

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