Suppose that every additional four percentage points in the investment rate (I GDP) boost economic growth

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Suppose that every additional four percentage points in the investment rate (I ÷ GDP) boost economic growth by one percentage point. Assume also that all investment must be financed with consumer saving. The economy is now assumed to be fully employed at 

GDP.........................................$8 trillion 

Consumption...........................6 trillion 

Saving.......................................1 trillion

Investment...............................1 trillion


If the goal is to raise the growth rate by 1 percent, 

(a) By how much must investment increase? 

(b) By how much must consumption decline for this to occur?

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The Macro Economy Today

ISBN: 978-1259291821

14th edition

Authors: Bradley R. Schiller, Karen Gebhardt

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