Answer to Question #50842 in Macroeconomics for KJ
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?
(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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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
Spent on domestic goods=.52
b)Spent on imports= .2*1= $0.2
c) Savings= 1-MPC