homework5spring2007

homework5spring2007 - Economics 302 Spring 2007 Homework #5...

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Economics 302 Spring 2007 Homework #5 Due Tuesday, April 23 Homework will be graded for content as well as neatness. Sloppy or illegible work will not receive full credit. 1. Consider a closed economy with consumption given by the equation C=200+2/3(Y- T). In addition, suppose that planned investment expenditure is 300 and the government runs a balanced budget with government spending equal to 300. Use your understanding of the Keynesian cross as a starting point to answer the following questions. a. If Y is 1,500, what is planned expenditure? What is inventory accumulation or decumulation? Given your answer to the last question, would you expect equilibrium Y be higher or lower than 1,500? If you expect equilibrium Y to be different, explain the mechanism by which you would expect Y to change in this economy. b. What is equilibrium Y? c. What are equilibrium consumption, private savings, public savings, and national savings? [Hint: first solve for equilibrium consumption, then use the definitions that you
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homework5spring2007 - Economics 302 Spring 2007 Homework #5...

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