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Unformatted text preview: G = 0 = TX. Investors always want to invest $200 million, or (a) What are the three types of investment? (b) The people of Yaleland are extremely cautious, and as a result, the marginal propensity to consume is zero (that is, MPC = 0.) Explain in words what this means. (c) If the equilibrium level of national income (Y) is $500 million, what does the consumption function look like? That is, what is its algebraic form. (Using geometry is not necessary.) (d) At this level of equilibrium income of $500 million, considerable unemployment exists. Accordingly, the ruling dictator decides to increase government spending by $150 million. (i) What is the value of the Keynesian multiplier for any change in government spending? (ii) What is the new equilibrium level of national income? Using a circular flow diagram, explain why this is an equilibrium level. (iii) At this new equilibrium (your answer to (ii)), how much is being invested in inventories?...
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This note was uploaded on 02/19/2008 for the course ECON 1120 taught by Professor Wissink during the Fall '05 term at Cornell University (Engineering School).
- Fall '05