1. In the Keynesian model, suppose that the economy has the following values : C = 100 + 0.75*Y G = 300 I = 200 NX = 0 (remember Y = GDP = C + I + G + NX) a) Solve for the level of equilibrium output in this economy. b) What is the MPC in this economy? What is the multiplier on government spending? (I want a specific number here, not a definition) c) Household savings is defined as income minus consumption (S = Y – C). What is the level of household savings in this economy? d) Suppose that households become nervous about the future of the economy and decide that they will consume less and save more money, so their new consumption function becomes C = 100 + 0.6*Y Solve for the new equilibrium level of output and calculate how much households end up saving. How has it changed from the level of savings in part c? e) How much does the government needs to increase its spending by to counteract the fall in economic output in this model?
1. In the Keynesian model, suppose that the economy has the following values : C = 100 + 0.75*Y G = 300 I = 200 NX = 0 (remember Y = GDP = C + I + G + NX) a) Solve for the level of equilibrium output in this economy. b) What is the MPC in this economy? What is the multiplier on government spending? (I want a specific number here, not a definition) c) Household savings is defined as income minus consumption (S = Y – C). What is the level of household savings in this economy? d) Suppose that households become nervous about the future of the economy and decide that they will consume less and save more money, so their new consumption function becomes C = 100 + 0.6*Y Solve for the new equilibrium level of output and calculate how much households end up saving. How has it changed from the level of savings in part c? e) How much does the government needs to increase its spending by to counteract the fall in economic output in this model?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
1. In the Keynesian model, suppose that the economy has the following values :
C = 100 + 0.75*Y G = 300 I = 200 NX = 0
(remember Y = GDP = C + I + G + NX)
a) Solve for the level of equilibrium output in this economy.
b) What is the MPC in this economy? What is the multiplier on government spending? (I want a
specific number here, not a definition)
c) Household savings is defined as income minus consumption (S = Y – C). What is the level of
household savings in this economy?
d) Suppose that households become nervous about the future of the economy and decide that they will
consume less and save more money, so their new consumption function becomes
C = 100 + 0.6*Y
Solve for the new equilibrium level of output and calculate how much households end up saving.
How has it changed from the level of savings in part c?
e) How much does the government needs to increase its spending by to counteract the fall in economic
output in this model?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 7 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education