Define economys investment demand function

Assignment Help Microeconomics

Reference no: EM131776968

Question: Your economy has a marginal propensity to consume (MPC) of 0.60. It is currently operating at a level at less than full employment. Prices appear to be sticky in this economy, but by some lucky stroke the rate of interest falls. This interest rate change causes private investment (I) to rise by 65 billion dollars.

(1) Using the Keynesian Cross diagram indicate by how much national income (Y) will rise once the economy completely absorbs the 65 billion in new investment? Describe the logic by which you get to your answer.

(2) What will happen to the level of national savings (S) once the economy has fully reacted to the new 40 billion in investment? Describe the logic by which you get to your answer.

(3) What does the dynamic that you just described in (1) and (2) above tell you about the shape of the IS curve? How is the IS curve (its slope and position in the graph) related to the economys Investment Demand Function?

Reference no: EM131776968

Questions Cloud

Why are prescription drugs more dangerous than illegal drugs : Why are prescription drugs more dangerous than illegal drugs. (Business law and ethics question)

Evolution of the concept of international development : Describe the evolution of the concept of international development and discuss the critiques against 'development'--or specifically modernization theory.

Who experienced challenge of any level of severity : Identify a leader who experienced a challenge of any level of severity – perhaps they had an embarrassing public display,

Approached daryl about possibly partnering in company : Chris has a great idea for a new company and approached Daryl about possibly partnering in the company.

Define economys investment demand function : What does the dynamic that you just described in (1) and (2) above tell you about the shape of the IS curve?

Current or past company expatriate worker policy : Discuss your current or past company’s expatriate worker policy.

Identify real potential competitor in the market : Create a hypothetical organization offering product /service of your choice. Identify a real potential competitor in the market.

Proposal report on motivating employees by increasing salary : Proposal report on motivating employees by increasing salary.

About your organization involvement in the global economy : Think about your organization's involvement in the global economy. Does your organization have expatriates?

User Account

All Pages