Fredonia has the following consumption function: C = 100 + 0.8DI Firms in Fredonia always invest $700

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Fredonia has the following consumption function:

C = 100 + 0.8DI

Firms in Fredonia always invest $700 and net exports are 0, initially. The government budget is balanced with spending and taxes both equal to $500.

a. Find the equilibrium level of GDP.

b. How much is saved? Is saving equal to investment?

c. Now suppose that an export-promotion drive succeeds in raising net exports to $100. Answer (a) and (b) under these new circumstances.

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Macroeconomics Principles And Policy

ISBN: 9780324586213

11th Edition

Authors: William J. Baumol, Alan S. Blinder

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Question Posted: Sep 01, 2012 02:45 AM

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Fredonia has the following consumption function: C = 100 + 0.8DI Firms in Fredonia always invest $700

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a Y C I G X IM C 100 08Y 500 C 100 08Y 400 C 300 08Y Y 300 08Y 700 500 0 Y 08Y 900 02Y 900 Y ...View the full answer

Macroeconomics Principles And Policy

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