T-Mobile Wi-Fi 8:59 AM 2 42% Done 5 of 6 how do you think the propensity to consume compares ing for people with high income and people with low income? jus Explain. Given your answer, do you think tax cuts will be in more effective at stimulating output when they are directed toward high-income or toward low-income taxpayers? Output i develop 8. Investment and income of saving This problem examines the implications of allowing investment to depend on output. Chapter 5 carries this analysis much further 10. Using and introduces an essential relation-the effect of the interest rate recession on investment-not examined in this problem. GDP a. Suppose the economy is characterized by the following in Chapter behavioral equations: in 2009. a. How Co + CYD $15 YO -Y -T b. If th 1 = bot by gove Government spending and taxes are constant. Note decr that investment now increases with output. (Chapter 5 C. If th discusses the reasons for this relation.) Solve for equilib wou rium output. in ou b. What is the value of the multiplier? How does the relation d. Supp between investment and output affect the value of the ment multiplier? For the multiplier to be positive, what condition 2009 must (c) + b ) satisfy? Explain your answers. would c. What would happen if (c + bj ) > 1? (Trick question. in 20 Think about what happens in each round of spending). 1 1. The "exi d. Suppose that the parameter bo, sometimes called business In fight confidence, increases. How will equilibrium output be af- cut and gove fected? Will investment change by more or less than the government change in bo? Why? What will happen to national saving? government the large defi a. How w EXPLORE FURTHER librium 9. The paradox of saving revisited b. Which You should be able to complete this question without doing any by $10 algebra, although you may find making a diagram helpful for part c. How do a. For this problem, you do not need to calculate the magnitudes of margin changes in economic variables-only the direction of change. d. You he a. Consider the economy described in Problem 8. Suppose increase that consumers decide to consume less (and therefore to duce th save more) for any given amount of disposable income. with del