Answer to Question #50842 in Macroeconomics for KJ

Question #50842
. For an economy with a tax rate of 10%, the following is given: C = 60 + 0.8YD G = 400 I = 140 NX = 10 - 0.20Y (I) If the economy produces $1 of extra output, how much of it is; (a). spent on domestic goods? (b). import expenditure? (c). saved?
1
Expert's answer
2015-02-23T13:58:05-0500
(I) If the economy produces $1 of extra output, it will:
(a) spent on domestic goods 0.8*$1 = $0.8 more.
(b) spent 0.2*$1 = $0.2 more on imports
(c) as savings S = s*Y, s = 1 - c and c = 0.8 in our case, savings will increase by (1 - 0.8)*$1 = $0.2.

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Comments

Assignment Expert
28.04.17, 17:36

Dear visitor,
please use panel for submitting new questions

Jerome
28.04.17, 10:42

I) If the economy produces $1 of extra ouput it will:
First calculate the MPC= .8YD
YD= 1-.1. because of taxes.... YD=0.9
i.e MPC= .8 (.9)=.72
Spent on domestic goods= Total spent - Imports
=.72- [.2(1)]
=.72-.2
Spent on domestic goods=.52
b)Spent on imports= .2*1= $0.2
c) Savings= 1-MPC
=1-0.72
MPS= .28

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