1. Suppose instead,c1+b1+g1= 0. Is the equilibrium in the goods market still possible? If so, what is the equilibrium output? 2. Solve for the equilibrium output (Y) in terms of the exogenous variables:c0,c1,b0,b1,g0,g1andT.
Please explain each question and show the work!
Homework Answers
(1)
Since multiplier = 1 / [1 - (c1 + b1 + g1)],
If (c1 + b1 + g1) = 0,
Multiplier = 1 / 1 = 1
So, equilibrium is still possible. But in this case, equilibrium output will be the sum of all autonomous expenditures.
(2)
In equilibrium, Y = C + I + G
Y = c0 + c1(Y - T) + b0 + b1Y + g0 + g1Y
Y = c0 + c1Y - c1T + b0 + b1Y + g0 + g1Y
(1 - c1 - b1 - g1) x Y = c0 - c1T + b0 + g0
Y = (c0 - c1T + b0 + g0) / (1 - c1 - b1 - g1)
Add Answer to:
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b)Draw the Goods Market Equilibrium. Be sure to label all curves,
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variables:c0,c1,b0,b1,g0,g1andT.
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label the equilibrium point, and label the slope of each
curve.
c)Solve for the equilibrium output (Y) in terms of the exogenous
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