problem 8.doc - Econ 162-A1 A2 Fall 2017 Kenny Christianson...

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Econ 162-A1, A2 Kenny Christianson Fall 2017 due: November 17 PROBLEM SET NUMBER EIGHT 1. Using labor supply and demand graphs for both the Keynesian and classical models, show the effects of an increase in the demand for labor. Assume that the classical labor market starts in equilibrium, and that there is involuntary unemployment in the Keynesian labor market. 2. In the classical model, what are the effects of an increase in government spending? Show graphically using the loanable funds market model and explain. 3. Assume that the level of autonomous consumption in Mudville is $400. If the marginal propensity to consume is 0.9, what is the consumption function? The saving function? Give an equation for each and show each graphically. At what level of income is saving = 0? 4. The following table shows the levels of various aggregate economic variables for the economy of Donaldville: Y C S I G (X – M) T 0 20 -120 40 40 20 100 100 100 ____ 40 40 20 100 200 ___ -80 40 40 20 100 300 260 -60 40 40 20 100 400 340 ___ __ __ __ ___ 500 ___ -20 40 40 20 100 600 500 0 40 40 20 100
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