Answer to Question #287001 in Macroeconomics for onesime

Question

1. Let the national income model be Y = C₀ + c (Y – 3tY) + I + G + X – M, where C₀, I, G, X, and M are given. The government considers increasing G by EUR 1 million. Assuming c = 0.3 and t = 0.15, what would be the expected change in the national output?

Answer 1

$G0=14$

$Y=C+I0+G0$

$Y= (25+6Y1/2) 16 + 14$

$Y=55+6Y1/2$

$Y^2= 55+6Y$

$(Y^2)-6Y-55=0$

$(y-11)(y+5)=0$

$11$

$Y=121$

$121=C+16+14$

$91=C$

$Y*=121$

$C*= 91$

If the marginal propensity to import increases, the multiplier will decrease. Imports, like income taxes, are automatic stablizers. If everyone increases their marginal propensity to save, the Keynesian model predicts that total saving will not increase, and may decline. This is the “paradox of thrift”