Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Could you please help me with those questions So far we have assumed that censumptiOn is determined by diSposable income (0 = C(YT), with the

Could you please help me with those questions

image text in transcribed
So far we have assumed that censumptiOn is determined by diSposable income (0 = C(YT), with the functiOn increasing) and investment is determined by the real interest rate (I = I0"), with the function decreasing). But the real interest rate may affect households' choice between consumption and saving, and rms' sales or cash ow may inuence their investment. This problem therefore asks you to consider the implications of some alternative assumptions. 8-. Suppose C = C (Y T, r), with C a decreasing function of 9". With this change in the model, does an increase in G increase 0, decrease it, or leave it unchanged, or is it not possible to tell? b. Suppose I = I (Y T, r), with I an increasing function of Y T (and suppose that C' is given by C(Y T)). Does an increase in 6' increase I, decrease it, leave it unchanged, or is it not possible to tell? Suppose there are two types of investment. One (for example, the investment of large, mature rm) is determined by the real interest rate, and the other (for example, the investment of start-ups) is determined by consumer demand. Thus we write I=m+Wm where I A and I B are the two types of investment. Similarly, assume 0 = 0%) + 03w _ r) The rst type of c0nsumpti0n may include cars and other long-lived goods, and the second might include shorter-lived goods such as restaurant meals and vacations. The \"A\" functions are assumed to be decreasing, the \"B\" functions are asSumed to be increasing. With this change in the model, how does an increase in G affect each type of investment and each type of consumption

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Public Relations

Authors: Tom Kelleher

1st Edition

0190201479, 9780190201470

More Books

Students also viewed these Economics questions

Question

Focus on the interview.

Answered: 1 week ago