Question
Two economists have estimated both consumption and investment functions. Their results are shown below. Economist A Economist B Consumption C = 300 + .6Y D
Two economists have estimated both consumption and investment functions. Their results are shown below.
Economist A Economist B
Consumption C = 300 + .6YD C = 400 + .5YD
Investment I = 800 + .2Y - 25i I = 1000 + .1Y - 100i
(a) Find the size of the multiplier in each case. Use the formula for lambda (no need to solve the model) lambda =1/(1-c1-b1)
(b) Find the equation for the IS curve in each case.
(c) Which IS curve has the steepest slope? Compare numerically. Draw the graph.
(d) In which economy will expansionary monetary policy have the greatest effect on Y?
(e) Explain why the policy impacts are so different by examining the parameters of the slope of the IS curve.
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The Chinese Economy Transitions And Growth
Authors: Barry Naughton
1st Edition
0262640643, 9780262640640
