Principles of Macroeconomics (11th Edition)
11th Edition
ISBN: 9780133023671
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 8, Problem 6P
Subpart (a):
To determine
MPC and MPS.
Subpart (b):
To determine
Graphing the equations and solving the equilibrium income.
Subpart (c):
To determine
New equilibrium income, multiplier.
Subpart (d):
To determine
Savings function.
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Students have asked these similar questions
Consider the imaginary small country of Kootenay. Assume that Kootenay is closed to trade, so that its net exports are equal to zero. Suppose that the economy is described by the following consumption function, where C is consumption, Y is income (real GDP), IP is planned investment, G is government purchases, and T is taxes:
C
=
$40 billion+0.5×(Y – T)
Suppose G=$115 billion, IP=$50 billion, and T=$10 billion.
Given the consumption function and the fact that, in a closed economy, planned expenditure can be calculated as Y=C+IP+G, the equilibrium income level is
billion.
Suppose that government purchases are increased by $100 billion. The new equilibrium level of income will be equal to
billion.
Based on the effect of the change in government purchases on equilibrium income, you can tell that this economy's multiplier is equal to
Consider the following is the economy of
Country Z:
C = 200 + 0.85Y
I= 100
Answer the following questions:
Calculate the equilibrium level of output
algebraically using the saving-investment (S-I)
approach.
Which of the following best describes the catch-up effect?
Question 14 options:
It is easier for a country to grow fast and "catch up" with richer countries if it starts out relatively poor.
Saving will always "catch up" with investment spending.
If investment spending is low, increased saving will help investment to "catch up."
Rich countries aid relatively poor countries so as to help them "catch up."
Chapter 8 Solutions
Principles of Macroeconomics (11th Edition)
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