Consider a closed economy. Let Y denote GDP, C denotes Consumption, I denotes Investment, r is the real rate of interest in percent, T denotes Taxes, and G stands for Government Spending. Suppose that these take the following form: Y = 8,000. C = 600 + 0.8(Y – T) I = 2,000 – 100r T = 500 G = 500. a. What is the marginal propensity to consume in this economy? b. What are the equilibrium values of C, I, and r? c. What are the values of private saving, public saving, and national saving?

Consider a closed economy. Let Y denote GDP, C denotes Consumption, I denotes Investment, r is the real rate of interest in percent, T denotes Taxes, and G stands for Government Spending. Suppose that these take the following form: Y = 8,000. C = 600 + 0.8(Y – T) I = 2,000 – 100r T = 500 G = 500. a. What is the marginal propensity to consume in this economy? b. What are the equilibrium values of C, I, and r? c. What are the values of private saving, public saving, and national saving?

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 4TY

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