Consumption function: Investment function: Equilibrium condition: C= b(Y-To) +hFo 1=go-Baro Y=C+I+Go 0 < b < 1,...

 

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Consumption function: Investment function: Equilibrium condition: C= b(Y-To) +hFo 1=go-Baro Y=C+I+Go 0 < b < 1, h>0 B> 0,8 >0 Note: since we are considering only the goods market, the interest rate is assumed to be exogenous. F is a measure of consumer confidence and is also exogenous, and b, h, 80, 81 are all constants and have the signs indicated above. a. Solve for equilibrium output. (3 points) b. Show the impact of a change in consumer confidence on equilibrium output. (3 points) Then use the consumption function to determine the impact of a change in consumer confidence on equilibrium consumption. (3 points) c. What is the impact of a change in the exogenous interest rate on equilibrium income? (3 points) d. If b=0.8, what is the impact on equilibrium output of a $10 billion increase in (i) T, or (ii) G, or (iii) both G and T? (3 points) Consumption function: Investment function: Equilibrium condition: C= b(Y-To) +hFo 1=go-Baro Y=C+I+Go 0 < b < 1, h>0 B> 0,8 >0 Note: since we are considering only the goods market, the interest rate is assumed to be exogenous. F is a measure of consumer confidence and is also exogenous, and b, h, 80, 81 are all constants and have the signs indicated above. a. Solve for equilibrium output. (3 points) b. Show the impact of a change in consumer confidence on equilibrium output. (3 points) Then use the consumption function to determine the impact of a change in consumer confidence on equilibrium consumption. (3 points) c. What is the impact of a change in the exogenous interest rate on equilibrium income? (3 points) d. If b=0.8, what is the impact on equilibrium output of a $10 billion increase in (i) T, or (ii) G, or (iii) both G and T? (3 points)

Answer rating: 100% (QA)

a To solve for equilibrium output we set Y equal to C I Y C I Using the given consumption function C bY T hF where 0 b 1 we substitute it into the equ... View the full answer