Calculate the equilibrium levels of national income, Macroeconomics

Let a macroeconomic model be of the following form:

C = a + bYD                            a = 10

T = T0                                   b = 4/5

G = G0                                  G0 = 10

 I = I0                                   I0 = 10

 YD = Y - T0                                     T0 = 10                                      

(a) Calculate the equilibrium levels of national income (Y), consumption (C) and Savings (S).

(b) Graph the above model representing both equilibrium conditions by separate graphs. That is,Y = C + I + G, and Total withdrawals = Total injections by graphing C and C + I functions separately as well as the aggregate expenditure function, C + I + G on the same graph paper.  Similarly, graph the S function by itself and S + T0 on a separate graph paper.  Label all the slopes and intercepts.  Make sure to present schedules.

(c)  If "a" in the consumption function were to increase by 5, G were to increase by 10 T0 were to increase by 10, calculate the separate as well as the total net effect of these changes on Y.

Posted Date: 3/12/2013 5:24:28 AM | Location : United States

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