BuyFind

Economics:

10th Edition
BOYES + 1 other
Publisher: Cengage Learning
ISBN: 9781285859460
BuyFind

Economics:

10th Edition
BOYES + 1 other
Publisher: Cengage Learning
ISBN: 9781285859460

Solutions

Chapter
Section
Chapter 10, Problem 3E
Textbook Problem

Draw a graph representing a hypothetical economy. Carefully label the two axes, the S + T + IM curve, the I + G + curve, and the equilibrium level of real GDP. Illustrate the effect of an increase in the level of autonomous saving.

Expert Solution
To determine

To illustrate:

The hypothetical economy graphically. Also, show the effect of an increase in autonomous saving.

Explanation of Solution

The economy is in equilibrium when the following condition is satisfied:

S+T+ IM = I+G+EX

Assuming, investment is autonomous and government spending and export is given exogenously and imply that they are independent of the level of real GDP, I + G + EX is a horizontal line.

On the other hand, saving is a function of real GDP. It has a positive relation

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