Suppose that the economy is characterized by the following equations: C = 160 + 0.6Yd I = 150; G = 150; and T = 100: For the economy in the last problem above:
(a) Assume that output is equal to 900. Compute total demand. Is it equal to output? Explain.
(b) Assume that output is equal to 1000. Compute total demand. Is it equal to output? Explain.
(c) Assume output is equal to 1000. Compute private saving. Is it equal to investment? Explain
Total demand = C + I + G
Yd = Y - T
a) Total demand = 160 + 0.6 x (900 - 100) + 150 + 150 = 940
No demand is not equal to output, Demand exceeds the output (there would be shortfall of inventory)
b) Total demand = 160 + 0.6 x (1000 - 100) + 150 + 150 = 1000
Demand is equal to output, Demand equals the output (equilibrium)
c) No private saving is not equal to investment
Yd = C + S
S = Yd - C = 1000 - 100 - 160 - 0.6 x (1000 - 100) = 200
Suppose that the economy is characterized by the following equations: C = 160 + 0.6Yd I...
Assume that the economy is characterized by the following behavioral equations C = 160 + 0.6YD , I = 150 , G = 150 , T = 100 a. Solve for equilibrium GDP (Y) b. Assume full employment output is equal to 900. Is the economy in an inflationary or deflationary gap? c. Show how fiscal policy can be used to get the economy to full employment.
C=160+0.6Yd I=150 G=150 T=100 Yd=Y-T (a) Assume that output is equal to 900. Compute total demand. Is it equal to output? Explain. (b) Assume that output is equal to 1000. Compute total demand. Is it equal to output? Explain. (c) Assume output is equal to 1000. Compute private saving. Is it equal to investment? Explain.
3. Suppose that the economy is characterized by the following: C 160.6Yd, I150, G What is the current level of disposable income, consumption and saving? Assume output in this economy equal to 900, compute total demand. Is it equal to production? Explain. For output to increase to 1000, how much additional investment is needed? Given the above information, G is larger than T, what will happen if you raise T = 150? 150, T 100, NE 0. (Note; Yd is...
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