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1:09 PM Sun Mar 12 . . . 80% chegg.com QUESTION 1 10 points Private consumption Cin a small closed economy can be described by

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1:09 PM Sun Mar 12 . . . 80% chegg.com QUESTION 1 10 points Private consumption Cin a small closed economy can be described by the expression C - 8 + (4/5) Y stipulating its dependence of Con aggregate output Y. Planned Investment by the private sector is I' - 8 while government purchases and net exports are zero. (0 Obtain autonomous consumption, the marginal propensity to consume (MPC), the spending multiplier (m], the equilibrium GDP and private savings S for this economy (you may need to draw a consumption table for Y levels 0, 10, 20, ... 100), () Firms anticipate a decrease in sales due to the pandemic so they decide to downsize by reducing planned investment spending to if - 6. What will happen to GOP and to private savings? (ifi) The contraction in economic activity described in (ii) translates into increased unemployment and generalized household indebtness, In order to restore financial health by increasing private savings, the government promotes austerity from the part of the population, People responds by reducing autonomous consumption from 8 to 6. What will happen to the equilibrium GDP and to private savings as a consequence of this behavioral change? Obtain the new values of Y and S as part of your answer. (iv) Comparing (1) and (ill), can you conclude that the austerity drive has contributed to restore private savings to their initial level? Explain why. (v) Using a single graph, describe the equilibrium GDP corresponding to the scenarios described in parts (1), (ii) and (ill). You may attach a picture of the graph to an email For the toolbar, press ALT+F10 (PC) or call B I US Paragraph Arial 14px A v 6 x X1 EX EXE i()

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