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Unformatted text preview: demand for goods Z. Keynesian theory is based on effective demand. d) Compute the multiplier. c 1 = 0.8 Multiplier, k = 1/ (1-c 1 ) = 1/ (1-0.8) =5 e) Assume that G is now equal to 140, use the multiplier (in part d) to calculate the change in output. Solve for equilibrium output Y. G=140 ∆Y= ∆G k ∆Y= (200-140)*5 = 300 f) Assume G is 140 and equilibrium output is given by answer in part e), compute private plus public saving. Is the sum of private and public saving equal to investment? Explain briefly. Private saving = Yd-C = Y-T-C =2350-150-250-o.8(2350-150) =190 Public Saving =I+G-T =200+140-150 =190 I=S +T-G =190+150-140 =200 Thus the sum of private and public saving is equal to investment. At equilibrium, investment must be equal to This is because what firm wants to invest must also be equal to what people and government want to save....
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- Spring '10
- Macroeconomics, Keynesian economics, Ee Hui Fang, International Economics Sem, Goh Xin Yi Stephanie