Question
The consumption function is C = 400 + .7(Y T) and the function for net exports is X n = 20 - .15
- The consumption function is C = 400 + .7(Y – T) and the function for net exports is
Xn = 20 - .15 Y + .2 Yf + .3 E. I is exogenous, G is set by policy, and Yf = foreign GDP and the exchange rate E do not change.
- What effect will an increase in G of $100 have on Y?
- What effect will a decrease in T of $100 have on Y?
- What would happen to your answers to (a) and (b) if the saving rate suddenly rose? Would your answers by higher, lower, or no change? Explain all your answers.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
a An increase in government spending G of 100 will have a multiplier effect on the economy impacting aggregate output Y To determine the effect on Y w...
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Step: 2
Step: 3
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Principles of Macroeconomics
Authors: Karl E. Case, Ray C. Fair, Sharon E. Oster
12th edition
134078802, 978-0134078809
