By how much must consumption decline to occur

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Reference no: EM13232773

Suppose that every additional five percentage points in the investment rate (I/GDP) boost economic growth by one percentage point. Assume also that all investment must be financed with consumer saving. The economy is now assumed to be fully employed at

GDP $6 trillion
Consumption 5 trillion
Saving 1 trillion
Investment 1 trillion
If the goal is to raise the growth rate by 1 percent,

a. By how much must investment increase?

b. By how much must consumption decline for this to occur?

Reference no: EM13232773

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