Consider the economy is characterized by the following behavioral equations: C = c0 + c1YD YD =
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Question:
- Consider the economy is characterized by the following behavioral equations: C = c0 + c1YD YD = Y - T I = b0 + b1Y Where: C - consumption Y - Income T - Taxes YD - Disposable income I - investment c0 -the value of Consumption when Disposable income is = 0, consumer confidence c0 -marginal propensity to consume b0 -the value of Investment when income is = 0 b0 -marginal propensity to invest, investors confidence a. Suppose the consumer decide to consume less (and therefore to save more) for any given amount of disposable income, and consumer confidence falls, determine what will happen to the level of output (GDP)? b. As a result of the effect on output, you determined in part a, what will happen to investment. What will happen to public savings?
- Explain. (Hint: Consider savings = investment) what is the effect on consumption?
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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