discussionsectionhandout10fall2007

discussionsectionhandout10fall2007 - MPS. b) Find...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Econ 102: Fall 2007 Discussion Section Handout #10 Question #1 The economy of Blahnik is defined by the following equations in the Keynesian model. C = consumption = 500 + 0.8(Y-T) I = autonomous investment = 600 G = government spending = 700 + 0.6T X = autonomous exports = 400 M = imports = 200 + 0.2(Y-T) T = net taxes = 0.1Y (Note that the coefficient 0.2 in our import function is known as the marginal propensity to import , an important idea in Keynesian models which is very similar to the marginal propensity to consume.) a) Write out the savings function in terms of aggregate income, and find the MPC and
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: MPS. b) Find equilibrium GDP (Y*) in Blahnik. c) Find equilibrium consumption, government savings, and capital inflows. d) Find private savings, using the fact that leakages must equal injections in equilibrium. Does this equal the value that we would get if we plugged Y* directly into our savings function from part a? e) How much does Y* increase if President Manolo decides to increase autonomous government spending by $100? (warning: this problem is very challenging)...
View Full Document

Ask a homework question - tutors are online