What is the level of consumption and investment? Do consumption, investment and government expenditures add up to the level of output? Calculate the money demand. f. d. e. Suppose the government spending increases by 1 unit.
What is the level of consumption and investment? Do consumption, investment and government expenditures add up to the level of output? Calculate the money demand. f. d. e. Suppose the government spending increases by 1 unit.
Chapter18: The Keynesian Model
Section: Chapter Questions
Problem 5SQP
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Introduction
The goods market equilibrium is at the point where the Y that is income is equal to the sum of consumption level, investment expenditure, and the level of government spending or expenditure in the economy.
part (d)
Goods market,
For money market equilibrium,
Therefore,
Now, putting this value of the interest in the goods asset market equation because for equilibrium the goods markets must intersect the asset market,
Therefore, Y is 14.5, and the interest rate is 3.8%
Using these values consumption and investment will be,
Now,
Left-hand side equal to 14.5 as calculated
Right-hand side,
Yes, the sum of consumption, investment, and government expenditures are adding up the same as equal to the level of income.
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