ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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- 1. Supply and demand in the neoclassical economy Consider an economy in which the consumption, investment and production functions are as follows. C = 90 + 0.7(Y − T) I = 250 − 20r F(K, L) = AK0.5L0.5 The capital and labor supply are equal to 100 each, A=10, G = 200 and T = 200. Compute the equilibrium values of output, overall labor income, consumption, public savings, national savings, investment, and the interest rate. Suppose now government spending increases to G=300 (everything else stays the same). What happens to output, consumption, savings, investment and the interest rate? Compute the new values for these variables.arrow_forward4arrow_forwardplease answer (i)(ii)arrow_forward
- Exercise 4. You are a manager at a certain factory that designs small gadgets. The factory has been quite successful in the past years. Your CEO is wondering whether or not it is a good idea to expand the factory this year. The cost to expand the factory is $1.5M. Doing nothing will result in expected $3M in revenue if the economy stays good and people continue to buy plenty of gadgets, but only $1M in revenue is expected if the economy is bad. On the other hand, expanding the factory carries an expected $6M in revenue if economy is good and $2M if the economy is bad. Assume there is a 40% chance of a good economy and a 60% chance of a bad economy. Also, assume the costs of operating the factory account to $.5M if the factory is expanded and $.3M if not. a. Illustrate a Decision Tree showing these choices. b. What should you do?arrow_forwardQUESTION 5 (a) What are some criticisms against the Keynesian model? How do post Keynesian models try to address? (b) Graphically illustrate and explain the conditions for a competitive general equilibrium (c) Graphically illustrate and explain the effect of an increase in government spending on general equilibrium conditions.arrow_forwardN⁵q1arrow_forward
- !arrow_forward2.1 According to the permanent income hypothesis, how will a representative consumer's bor- rowing and consumption respond to: 1. An anticipated temporary decrease in income at t = 2. 2. An anticipated permanent decrease in income (at time periods t = 1 and t = 2) when it occurs. 3. Are the answers different if the changes in income are unanticipated, i.e. if they come as a surprise to the consumer? Comment on the size of the marginal propensity to consume.arrow_forwardNeoclassical economics does NOT argue _______ Question 1 options: GDP is determined by supply factors such as resources and technology, not aggregate demand government regulation is generally good for the overall economy the market system has the self-adjusting mechanism that fixes unemployment and recession in the long run as long as wages, prices, and interest rates are flexible raising minimum wage generally creates unemploymentarrow_forward
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