1. In the Keynesian model, suppose that the economy has the following values : C = 100 + 0.75*Y G = 300 I = 200 NX = 0 (remember Y = GDP = C + I + G + NX) a) Solve for the level of equilibrium output in this economy. b) What is the MPC in this economy? What is the multiplier on government spending? (I want a specific number here, not a definition) c) Household savings is defined as income minus consumption (S = Y – C). What is the level of household savings in this economy? d) Suppose that households become nervous about the future of the economy and decide that they will consume less and save more money, so their new consumption function becomes C = 100 + 0.6*Y Solve for the new equilibrium level of output and calculate how much households end up saving. How has it changed from the level of savings in part c? e) How much does the government needs to increase its spending by to counteract the fall in economic output in this model?
1. In the Keynesian model, suppose that the economy has the following values : C = 100 + 0.75*Y G = 300 I = 200 NX = 0 (remember Y = GDP = C + I + G + NX) a) Solve for the level of equilibrium output in this economy. b) What is the MPC in this economy? What is the multiplier on government spending? (I want a specific number here, not a definition) c) Household savings is defined as income minus consumption (S = Y – C). What is the level of household savings in this economy? d) Suppose that households become nervous about the future of the economy and decide that they will consume less and save more money, so their new consumption function becomes C = 100 + 0.6*Y Solve for the new equilibrium level of output and calculate how much households end up saving. How has it changed from the level of savings in part c? e) How much does the government needs to increase its spending by to counteract the fall in economic output in this model?
Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?
Section9.A: The Simple Algebra Of Income Determination And The Multiplier
Problem 4TY
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1. In the Keynesian model, suppose that the economy has the following values :
C = 100 + 0.75*Y G = 300 I = 200 NX = 0
(remember Y = GDP = C + I + G + NX)
a) Solve for the level of equilibrium output in this economy.
b) What is the MPC in this economy? What is the multiplier on government spending? (I want a
specific number here, not a definition)
c) Household savings is defined as income minus consumption (S = Y – C). What is the level of
household savings in this economy?
d) Suppose that households become nervous about the future of the economy and decide that they will
consume less and save more money, so their new consumption function becomes
C = 100 + 0.6*Y
Solve for the new equilibrium level of output and calculate how much households end up saving.
How has it changed from the level of savings in part c?
e) How much does the government needs to increase its spending by to counteract the fall in economic
output in this model?
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