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Consider the economy is a closed economy, the factors of production are in fixed supply and fully used, prices adjust to balance supply and demand.
Consider the economy is a closed economy, the factors of production are in fixed supply and fully used, prices adjust to balance supply and demand. Consumption is a linear function of disposable income and the marginal propensity to consume is 0.8. Finally, the marginal product of labor is 20. Calculate the change in saving in each of the following scenarios:
(a) Government expenditures increase by 60.
(b) Taxes increase by 80.
(c) Total income increases by 60 (i.e., Change in Y=60).
(d) The labor supply increases by 12 (i.e., Change in L=12).
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