An open economy presents the following data. The intercept of the consumption function is 4700. The marginal
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Question:
An open economy presents the following data.
- The intercept of the consumption function is 4700.
- The marginal propensity to save (MPS) is 0.20.
- There are no tax collections in this economy.
- Government expenditure is 10,000.
- Autonomous investment is 6,000.
- The marginal propensity to invest is 0.15.
- Autonomous exports are 5,000.
- Autonomous imports are 3,000.
- The marginal propensity to import is 0.1.
Using this information, answer the following four parts.
- Calculate the equilibrium level of GDP.
- Calculate the multiplier in this economy.
- Now suppose that the MPS falls to 0.1.Calculate the new multiplier in this economy.
- Given the change in the MPS to 0.1, calculate the new equilibrium level of GDP.
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