Worksheet 4 - Introduction to Macroeconomics Econ...

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Econ 104a,c,d,e,f – Spring 2010 – Due 2/25, 2/26 Worksheet 4 – Keynesian Model of the Economy 1. Consider a closed, simple economy (not necessarily at full employment) with no government, characterized by the following equations, (C is Consumption, PDI is personal disposable Income, and I is Investment): C = 200 + .75(PDI) I = 300 a. Using the Graph below, graph the Consumption Function, Investment, and Aggregate Expenditures. AE 100 0 Y = Income b. On the Graph, label the point where Savings = 0, the point of equilibrium income. Then, derive the values for these using the equations above. Savings = 0, Income = _________ Equilibrium Income = _________ c. At Equilibrium, how much are consumers saving? Investment? Equilibrium Savings = _________ Equilibrium Investment = _________ What is the relationship between these two concepts in the model? d. What happens to equilibrium Income and Savings when Investors get pessimistic and reduce Investment to 200? New Equilibrium Income = _________
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This note was uploaded on 10/19/2011 for the course ECON 104 taught by Professor Dolenc during the Spring '08 term at UMass (Amherst).

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Worksheet 4 - Introduction to Macroeconomics Econ...

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