Calculate equilibrium level of national income

Reference no: EM1314436

Consider an economy characterized by the following equations:

C = 500 + 0.75 V + 0.05 W 1 = 150

Where C is desired consumption, / is desired investment, W is household wealth, and V is national income.

a. Suppose W = 10 000. Draw the aggregate expenditure function on a scale diagram along with the 45°line. What is the equilibrium level of national income?

b. The marginal propensity to spend in this economy is 0.75. What is the value of the multiplier?

c. Using your answer from part (b), what would be the change in equilibrium national income if desired investment increased to 250? Can you show this in your diagram?

d. Now suppose household wealth increases from10 000 to 15 000. What happens to the AE function and by how much does national income change?

Reference no: EM1314436

Questions Cloud

Equilibrium condition-effect on level of equilibrium : Suppose the level of autonomous expenditure, which we could call A, rises by AA. What is the effect on the level of equilibrium national income?

Computation of yield to maturity using the given data : Computation of Yield to Maturity using the given data and they have a 15-year maturity, an annual coupon of $95

Slope of the regression model : Use the t test to determine whether the slope of the regression model is significant at α = 0.05.

Explain valuation of bond using the given information : Explain Valuation of bond using the given information and make an annual coupon payment of $70

Calculate equilibrium level of national income : Assume W = 10 000. Draw the aggregate expenditure function on a scale diagram along with 45°line. What is the equilibrium level of national income?

Test for the significance of the slope : Below you are given a partial computer output based on a sample of 21 observations, relating an independent variable (x) and a dependent variable (y).

Computation of value of bond and intrinsic value : Computation of value of bond and intrinsic value and Holding everything constant and assuming that the coupon is paid on a semiannual basis

Determine the dot product : Determine the dot product.

Probability and poisson distribution : In order to test the assumption of a Poisson distribution, a random sample of 150 ten-minute intervals was taken.

User Account

All Pages