4) Suppose the economy is closed and is characterized by the following behavioral equations: C=q₂ +GY Y₂=Y-T 1=b₂ + b₂Y a. b. C. Government spending and taxes are constant. Suppose that consumers decide to consume less (and therefore to save more) for any given amount of disposable income. Specifically assume that consumer confidence () falls. What will happen to output? As a result of the effect on output you determined in part (a), what will happen to investment? What will happen to public saving? What will happen to private saving? Explain. What is the effect on consumption? Suppose that consumers had decided to increase consumption expenditure, so tha Co had increased. What would have been the effect on output, investment, and private saving in this case? Explain. What would have been the effect on consumption?

4) Suppose the economy is closed and is characterized by the following behavioral equations: C=q₂ +GY Y₂=Y-T 1=b₂ + b₂Y a. b. C. Government spending and taxes are constant. Suppose that consumers decide to consume less (and therefore to save more) for any given amount of disposable income. Specifically assume that consumer confidence () falls. What will happen to output? As a result of the effect on output you determined in part (a), what will happen to investment? What will happen to public saving? What will happen to private saving? Explain. What is the effect on consumption? Suppose that consumers had decided to increase consumption expenditure, so tha Co had increased. What would have been the effect on output, investment, and private saving in this case? Explain. What would have been the effect on consumption?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.8P

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