1 what is the relationship between consumption and

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International Financial Management
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Chapter 17 / Exercise 17
International Financial Management
Madura
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1. What is the relationship between consumption and the following economic variables: household income, wealth, household's expectations about the future, and interest rates? 2. Explain any differences between actual investment and planned investment. Also, is it possible for actual investment to be greater than planned investment? If so, explain. 3. Assume consumption is represented by the following: C = 400 + .75Y. Also assume that planned investment (I) equals 100. Given the information, calculate the equilibrium level of income. 4. Assume that the saving function is S = - 100 + .1Y and planned investment is 40. Calculate the equilibrium level of output using the leakages/injections approach. How much would output contract by if planned investment fell by 10?
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International Financial Management
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Chapter 17 / Exercise 17
International Financial Management
Madura
Expert Verified
5. Suppose an economy is initially in equilibrium at $800 billion and investment increases by $10 billion. This causes the economy to expand to $1200 billion. Calculate the value of the multiplier. 6. Please explain the "paradox of thrift” 7. Assume the following behavioral equations for a macroeconomy: C = 100 + .9Y d , I = 50, T = 100 and G = 40 (a) Calculate the equilibrium level of output. (b) Given the information, calculate the level of consumption that occurs at the equilibrium level of income. (c) Suppose government spending increases by 100. Calculate the new equilibrium level of income. 8. Assume the following behavioral equations for a macroeconomy: C = 200 + .8Y d , I = 200, T = 200 and G = 500

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