Suppose the basic consumption level of Primaland is $10,000 million and that people save only 10% of their income. Government spending there is $5,000 million and the budget deficit is balanced while exports are $700 but Trade is balanced as well. The investment level is $6000 million; however, investment is independent of income and interest rate.
Aggregate Demand Z is defined as Z = C+I+G+(X-M) and the equilibrium condition is Y=Z.
The disposable income is YD=(Y-T).
Consumption is C=C0+c1YD and Investment is: I=I0.
a. Set up the model for this economy.
b. Calculate and graph the equilibrium level of income for this economy.
c. What is the multiplier of this Economy?
d. What is the level of consumption at equilibrium?
e. What is the saving level if S= -C0+0.1YD? What is it equal to?
Consumer confidence drops and people decide to "save" more or "consume" less by lowering their basic consumption to $8,000
f. What happens to the equilibrium Y = income and what happens to save, EXPLAIN.
Suppose the basic consumption level of Primaland is $10,000 million and that people save only 10% of their income. Government spending there is $5,000 million and the budget deficit is balanced while exports are $700 but Trade is balanced as well. The investment level is $6000 million; however, investment is independent of income and interest rate.
Aggregate Demand Z is defined as Z = C+I+G+(X-M) and the equilibrium condition is Y=Z.
The disposable income is YD=(Y-T).
Consumption is C=C0+c1YD and Investment is: I=I0.
a. Set up the model for this economy.
b. Calculate and graph the equilibrium level of income for this economy.
c. What is the multiplier of this Economy?
d. What is the level of consumption at equilibrium?
e. What is the saving level if S= -C0+0.1YD? What is it equal to?
Consumer confidence drops and people decide to "save" more or "consume" less by lowering their basic consumption to $8,000
f. What happens to the equilibrium Y = income and what happens to save, EXPLAIN.
