Macroeconomics
21st Edition
ISBN: 9781259915673
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 11, Problem 8DQ
To determine
Relation of say’s law to the classical views.
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3. permanent Income Hypothesis
a) suppose that beta=.9 and R= 2222 (that is ~22%). For an individual who acts according to the PIH, will their consumption next period be higher than current consumption or lower?
b) What is the main crucial difference between the Keynesian Consumption function and the consumption function derived from the PIH (or Lifetime Income Hypothesis)?
c) If Present Value of future income stream is 500,000 and a person has a beta of.8, how much will their consumption go up today if only today's income increases by 1000? How much will their consumption increase (approximately) if their income goes up by 1000 in all periods?
ADVANCED ANALYSIS Assume that the consumption schedule for a private closed economy is such that consumption is:
C = 100 + 0.75Y
Assume further that planned investment Ig is independent of the level of real GDP and constant at Ig = 50. Recall also that, in equilibrium, the real output produced (Y) is equal to aggregate expenditures:
Y = C + Ig
Instructions: Enter your answers as whole numbers.a. Calculate the equilibrium level of income or real GDP for this economy.
Equilibrium GDP (Y) = $ .
b. What happens to equilibrium GDP if Ig changes to 60?
Equilibrium GDP (Y) = $ .
What does this outcome reveal about the size of the spending multiplier?
Spending multiplier = .
What would be the level of saving if the real GDP (Y) were at $7 trillion? what is the level of desired investment at this level? What forces are at work at a real GDP of $7 trillion? What will be the equilibrium level of real GDP?
Chapter 11 Solutions
Macroeconomics
Ch. 11.2 - Prob. 1QQCh. 11.2 - Prob. 2QQCh. 11.2 - Prob. 3QQCh. 11.2 - Prob. 4QQCh. 11.7 - Prob. 1QQCh. 11.7 - Prob. 2QQCh. 11.7 - Prob. 3QQCh. 11.7 - Prob. 4QQCh. 11 - Prob. 1DQCh. 11 - Prob. 2DQ
Ch. 11 - Prob. 3DQCh. 11 - Prob. 4DQCh. 11 - Prob. 5DQCh. 11 - Prob. 6DQCh. 11 - Prob. 7DQCh. 11 - Prob. 8DQCh. 11 - Prob. 1RQCh. 11 - Prob. 2RQCh. 11 - Prob. 3RQCh. 11 - Prob. 4RQCh. 11 - Prob. 5RQCh. 11 - Prob. 6RQCh. 11 - Prob. 7RQCh. 11 - Prob. 8RQCh. 11 - Prob. 9RQCh. 11 - Prob. 1PCh. 11 - Prob. 2PCh. 11 - Prob. 3PCh. 11 - Prob. 4PCh. 11 - Prob. 5PCh. 11 - Prob. 6PCh. 11 - Prob. 7PCh. 11 - Prob. 8PCh. 11 - Prob. 9PCh. 11 - Prob. 10P
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