Consider a hypothetical economy without government

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Consider a hypothetical economy without government or international trade. Households spend $0.90 of each additional dollar they earn and save the remaining $0.10. Even when they have no income, they spend $100 in total. Firms plan a total of $150 investment. Calculate the current equilibrium output of this economy. Then, suppose that firms increase their planned investment from $150 to $250. Also suppose that firms adjust their amount of production by the amount of unplanned inventory every year. (For example, when they have +$20 unplanned inventory, they reduce their production by $20 during that year) What will be the output of this economy four years later?

Reference no: EM131007726

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