Reference no: EM13953128
Z=C+I+G
C =1000+0.95(Y -T)
I =200, T =100, G=100
d) Now consider an investment spending function which exhibits an endogenous response to the state of the economy. In particular say that investment spending is given by the following equation,
I =100+0.1∗Y
so that, like consumption, investment "starts" at some basic level (100) but rises
in proportion to (along with) the level of GDP in the economy (the0.1∗Y part).
Solve for the equilibrium level of output for this economy. (
e) How does the "expenditure multiplier" in this case of "endogenous" investment compare with the expenditure multiplier found for part a) of this question? Try to explain this difference in a sentence or two.
f) Now consider if tax-collections where also endogenous to the state of the economy. In particular say that taxes are mostly collected from "income taxes", which are roughly a fixed percentage of aggregate income as follows,
T = 0.25Y.
Solve for the equilibrium level of output for this economy
g) How does the "expenditure multiplier" with this additional "endogenous" component compare with the expenditure multiplier found in part d) above? Try to explain this difference in a sentence or two.
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