60 576
Assignments Done
97,9%
Successfully Done
In April 2018

Answer to Question #66479 in Macroeconomics for kwame

Question #66479
Suppose that the economy is characterized by the following behavioral equations: C = 160 + 0.6Yd, I = 150 + 0.25Y, G = 150, T = 100. Solve for the following.
a. Equilibrium GDP (Y) and disposable income (Yd)
b. Consumption spending (C)
c. Compute the multiplier
d. If government spending doubles, what will happen to AD and Y? Compute the public and private saving. Explain what private and public savings are. Give a brief explanation of total savings in the AD model.
Expert's answer
C = 160 + 0.6Yd, I = 150 + 0.25Y, G = 150, T = 100. Solve for the following.
a. Equilibrium GDP (Y) and disposable income (Yd):
Yd = Y - T, Y = C + I + G, so:
160 + 0.6(Y - 100) + 150 + 0.25Y + 150 = Y,
0.15Y = 400,
Y = 400/0.15 = 2,666.67.
Yd = Y - T = 2,666.67 - 100 = 2,566.67.
b. Consumption spending (C):
C = 160 + 0.6*2,566.67 = 1,700.
c. Compute the multiplier
The multiplier is m = 1/(1 - c) = 1/(1 - C/Y) = 1/(1 - 1,700/2,666.67) = 2.76.
d. If government spending doubles, AD will increase and Y will increase too.
Public saving = T - G = 100 - 150 = -50, private saving = (Y - T) - C = (2,666.67 - 100) - 1,700 = 866.67.
Total saving = public saving + private saving = -50 + 866.67 = 816.67.

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