Consider a closed economy described by the following equations (all figures in millions of dollars): Y...

Consider a closed economy described by the following equations (all figures in millions of dollars):

Y = C + I + G + NX

Y = 8,000 (current value of output)

G = 2,000

T = 1,000 + .1(Y)

C = 450 + 0.75 (DI)

I = 2,000

NX = 0

What is the current state of this economy in term of private saving, public saving and the balance between current level of investment and private domestic saving?
Suppose government approve an infrastructure investment which raises government expenditure to 2,250. How would this increase impact your calculation in (a) above?
Using the initial information given above, suppose due to better economic forecasts, business community decide to increase the level of investment by 10%, how would the change investment impact the economy (in term of consumption, saving, taxes, etc.)? (hint; you want compare the result you get in (c) with what you calculated in (a)).

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Rahul Sunny answered 2 years ago

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