Solutions to Additional Goods Market Problems

Solutions to Additional Goods Market Problems - 1. Desired...

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1. Desired saving œ] GK œ]  +,] ÐX >]Ñ K œ] ",Ð">Ñ +,X K ef cd E E so that the goods market equilibrium condition, implies WœM ] ",Ð">Ñ +,X KœMÐ<Ñ E A rise in implies a fall in and so requires a fall in to maintain goods market equilibrium <M ] Solving for gives as found in class. ]] œ MÐ<Ñ+,X K ",Ð">Ñ E 2. (a) Recall that the slope of curve is given by . A reduction in MW œ   ! > ? ? < ]. ",Ð">Ñ ¹ will decrease the numerator, reducing the absolute value of the slope. That is, it will make the curve flatter. The economics of the slope change is that, following a reduction in the interest rate, a lower tax rate increases the rise in disposable income at each round of the multiplier process implying a greater rise in consumption and so adding more to income at each round. The resultant greater rise in the level of GDP needed for spending balance implies a flatter curve.
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This note was uploaded on 04/26/2010 for the course ECON 101 taught by Professor Staff during the Spring '08 term at Vassar.

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Solutions to Additional Goods Market Problems - 1. Desired...

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