3) Suppose the economy is closed and is characterized by the following behavioral equations: C=C₁ + a₂Y₂ Y₂ = Y-T l=b₂ + b₁Y Government spending and taxes are constant. Solve for the equilibrium output. What is the value of the multiplier? How does the relationship between investment and output affect the value of the multiplier as compared to the case when investment was exogenous? For the multiplier to be positive what condition must ( G + b) satisfy? Explain your answers? a. b. Suppose that the parameter bo, sometimes called business confidence, increases. How will C. the equilibrium output be affected? Will investment change by more or less than the change in bo? Why? What will happen to national saving?

3) Suppose the economy is closed and is characterized by the following behavioral equations: C=C₁ + a₂Y₂ Y₂ = Y-T l=b₂ + b₁Y Government spending and taxes are constant. Solve for the equilibrium output. What is the value of the multiplier? How does the relationship between investment and output affect the value of the multiplier as compared to the case when investment was exogenous? For the multiplier to be positive what condition must ( G + b) satisfy? Explain your answers? a. b. Suppose that the parameter bo, sometimes called business confidence, increases. How will C. the equilibrium output be affected? Will investment change by more or less than the change in bo? Why? What will happen to national saving?

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter9: Aggregate Demand

Section: Chapter Questions

Problem 5.12P

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