need answers of 1 and 8

ements true, false, or uncertain. Explain briey. i. l Bung a... name; it this act. Elba are} hairspray a. b. The largest component of GDP is consumption. Government spending, including transfers, was equal to 18.1% of GDP in 2014. The propensity to consume has to be positive, but other- wise it can take on any positive value. One factor in the 2009 recession was a drop in the value of the parameter c0. Fiscal policy describes the choice of government spend ing and taxes and is treated as exogenous in our goods market model. The equilibrium condition for the goods market states that consumption equals output. An increase of one unit in government spending leads to an increase of one unit in equilibrium output. An increase in the propensity to consume leads to a decrease in output. / stment and income ' This problem examines the implications of allowing investment to depend on output. Chapter 5 carries this analysis much further and introduces an essential relationthe effect of the interest rate on investmentnot examined in this problem. a. Suppose the economy is characterized by the following behavioral equations: C=Co+CIYD YD=Y-T I=b0+blY Government spending and taxes are constant. Note that investment now increases with output. (Chapter 5 discusses the reasons for this relation.) Solve for equilib- rium output. b. What is the value of the multiplier? How does the relation between investment and output affect the value of the multiplier? For the multiplier to be positive. what condition must (c, + b1) satisfy? Explain your answers. c. What would happen if (c, + b1) > 1? (Trick question. Think about what happens in each round of spending). d. Suppose that the parameter b0, sometimes called business condence. increases. How will equilibrium output be af- fected? Will investment change by more or less than the change in b0? Why? What will happen to national saving? 'Ss