Consider an economy in which taxes, planned investment, government spending on goods and services, and net exports
Question:
Consider an economy in which taxes, planned investment, government spending on goods and services, and net exports are autonomous, but consumption and planned investment change as the interest rate changes. You are given the following information concerning autonomous consumption, the marginal propensity to consume, planned investment, government purchases of goods and services, and net exports:
Ca =1,500-10r
c=0.6
T=1,800
Ip=2,400-50r
G=2,000
NX= -200
(a) Compute the value of the marginal propensity to save.
(b) Compute the amount of autonomous planned spending, Ap, given that the interest rate equals 3.
(c) Compute the equilibrium level of income, given that the interest rate equals 3.
(d) Suppose that autonomous consumption changes by 4 percent for any change in household wealth and that the decline in the housing market from 2006–09 and the drop in stock market from 2007–09 reduce household wealth by $3 trillion. Compute the decline in consumption that results from the decline in household wealth.
Expert Answer:
a MPC c 06 MPS 1MPC 106 04 MPS 04 b Autonomous spending Ca cT Ip G NX Autonomous Spen... View the full answer
