The following data are estimates for the small island nation of Kaboom
Real GNP (Y........................ 800 million Kaboomian dollars
Planned investment spending) ........................ 200 million
Kaboomian dollars
Kaboom is a simple economy with no government, no taxes, and no imports or exports. Kaboomers (citizens of Kaboom) are creatures of habit. They have a rule that everyone saves exactly 40 percent of income. Assume that planned investment is fixed and remains at 200 million Kaboomian dollars.
You are asked by the business editor of the Explosive Times, the local newspaper, to predict the economic events of the next few months. By using the data given, can you make a forecast? What is likely to happen to inventories? What is likely to happen to the level of real GDP? Is the economy at an equilibrium? When will things stop changing?