Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 25.A, Problem 5TY
(a)
To determine
Calculate the equilibrium level of GDP.
(b)
To determine
Check whether the savings is equal to investment.
(c)
To determine
Calculate the equilibrium level of GDP and savings.
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Students have asked these similar questions
In an economy with lump-sum taxes and no international trade, if the marginal propensity to consume is 0.8, which of the following is true?
A. When consumption increases by RM5, investment increases by a maximum of RM1.
B. When consumption increases by RM5, savings increase by a maximum of RM1.
C. When investment increases by RM1, income increases by a maximum of RM5.
D. When investment increases by RM1, consumption increases by a maximum of RM5.
6. You are given the following data concerning Freedonia, a leg-
endary country:
(1) Consumption function: C = 200 + 0.8Y
(2) Investment function: I = 100
(3) AE = C + I
(4) AE = Y
a. What is the marginal propensity to consume in Freedonia,
and what is the marginal propensity to save?
b. Graph equations (3) and (4) and solve for equilibrium
income.
C. Suppose equation (2) is changed to (2´) I = 110. What is
the new equilibrium level of income? By how much does
the $10 increase in planned investment change equilibrium
income? What is the value of the multiplier?
Assume that a nation's marginal propensity to consume (MPC) is 0.75. A highiy productive, cost-cutting technology is developed for the production
of commercial airplanes. The total industry expenditure in this nation is $100 million for the immediate acquisition and adoption of this technology.
(a) For this nation, identify and explain how much this spending on new technology will change each of the following in the first round:
i. Income (GDP)
L. Saving
i. Consumption
(b) Assuming a closed economy and no leakages, identify and explain how much this spending on new technology will change each of the
following at the end of the final round:
i. Income (GDP)
ii. Saving
li. Consumption
Chapter 25 Solutions
Economics: Principles & Policy
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