64 729
Assignments Done
99,4%
Successfully Done
In September 2018

Answer to Question #51414 in Macroeconomics for William WWasonga Omole

Question #51414
If: Y = C + I where C = 120 + 0.8Y, I = 200 + 0.05i and Y = 1400,
Q1. Compute the equilibrium national income, consumption and investments
Q2. What is the size of government expenditure multiplier and savings ?
Expert's answer
Q1.
Y = C + I = 120 + 0.8Y + 200 + 0.05i = 320 + 0.8Y+ 0.05i
0.2Y = 320+ 0.05i
280 – 320 = 0.05i
i = -800
I = 200 + 0.05i = 200 – 40 = 360
C = 120 + 0.8Y = 120 + 1120 = 1240
Y = C + I = 1400

Q2.
government expenditure multiplier = 1 / (1-MPC)
 MPC is the marginal propensity to consume
government expenditure multiplier = 1 / (1-0.8) = 5
We have the consumption function in the form C = a + MPC (Y) that
autonomous consumption is a. The savings function is S = -a + (1 –
MPS) (Y)
So, the saving function is:
S = -120 + 0.2 Y
S = -120 + 280 = 160

Need a fast expert's response?

Submit order

and get a quick answer at the best price

for any assignment or question with DETAILED EXPLANATIONS!

Comments

No comments. Be first!

Leave a comment

Ask Your question

Submit
Privacy policy Terms and Conditions