Suppose C=C(Y-T,r), with C a decreasing function of r. With this change in the model, does an increase in G increase C, decrease it, or leave it unchanged, or is it not possible to tell? b. Suppose I I(Y-T,r), with I an increasing function of Y-T (and suppose that C is given by C(Y-T)). Does an increase in G increase I, decrease it, leave it unchanged, or is it not possible to tell? C. Suppose there are two types of investment. One (for example, the investment of large, mature firm) is determined by the real interest rate, and the other (for example, the investment of start-ups) is determined by consumer demand. Thus we write I IA(r)+1B(YT) where 1A and 1B are the two types of investment. Similarly, assume C=CA (r)+CB (Y-T) The first type of consumption may include cars and other long-lived goods, and the second might include shorter-lived goods such as restaurant meals and vacations. The "A" functions are assumed to be decreasing, the "B" functions are assumed to be increasing. With this change in the model, how does an increase in G affect each type of investment and each type of consumption?

Suppose C=C(Y-T,r), with C a decreasing function of r. With this change in the model, does an increase in G increase C, decrease it, or leave it unchanged, or is it not possible to tell? b. Suppose I I(Y-T,r), with I an increasing function of Y-T (and suppose that C is given by C(Y-T)). Does an increase in G increase I, decrease it, leave it unchanged, or is it not possible to tell? C. Suppose there are two types of investment. One (for example, the investment of large, mature firm) is determined by the real interest rate, and the other (for example, the investment of start-ups) is determined by consumer demand. Thus we write I IA(r)+1B(YT) where 1A and 1B are the two types of investment. Similarly, assume C=CA (r)+CB (Y-T) The first type of consumption may include cars and other long-lived goods, and the second might include shorter-lived goods such as restaurant meals and vacations. The "A" functions are assumed to be decreasing, the "B" functions are assumed to be increasing. With this change in the model, how does an increase in G affect each type of investment and each type of consumption?

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter9: Aggregate Expenditures

Section: Chapter Questions

Problem 10E

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