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Unformatted text preview: l, since investment falls, and investment equals saving.
Since output and consumer confidence fall, consumption will also fall. c. Output, investment, and private saving would have risen. d. Clearly this logic is faulty. When output is low, what is needed is an attempt by
consumers to spend more. This will lead to an increase in output, and
therefore—somewhat paradoxically—to an increase in private saving. Note,
however, that with a linear consumption function, the private saving rate (private
saving divided by output) will fall when c0 rises. 10. a.
d. $450 B
$450 B 11. a.
b. Equilibrium output will fall in the short run
A cut in G of will have a larger impact on equilibrium GDP than the same size
increase in T
The statement is accurate for any value of the marginal propensity to consume.
As the deficit is reduced, the value of c0 increases as consumer confidence
increases. This will increase equilibrium GDP. c.
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This note was uploaded on 01/29/2014 for the course ECON 110A taught by Professor Staff during the Winter '08 term at UCSD.
- Winter '08