Question

In: Economics

Assume that the equations below represent a closed economy. Hints: YD: Disposable Income Y = C...

Assume that the equations below represent a closed economy.

Hints:

YD: Disposable Income

Y = C + I + G + NX is for part a): so, Y = 80 + MPC (YD) + I + G

C = 80 + 0.6(YD) YD = Y - T

I = 1000 T = 400

NX = (X – Im) = 0 G = 500

1. Solve for:

  • Equilibrium GDP (Y)
  • Disposable Income (YD)
  • Consumption Spending (C)
  • Private Saving
  • Public Saving
  • The multiplier

2. Verify that, in equilibrium total saving equals investment.

3. Suppose that the government wishes to increase equilibrium GDP by 100.

  • What change in government spending is required?
  • If government spending cannot change, what change in taxes is required?

Solutions

Expert Solution

Rahul Sunny answered 2 years ago
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