Saving and spending behavior depend in part on wealth

Assignment Help Business Economics

Reference no: EM131244343

This chapter argues that saving and spending behavior depend in part on wealth (accumulated savings and inheritance), but our simple model does not incorporate this effect. Consider the following model of a simple economy: C = 50 + 0.8Y + 0.1W

I= 200

W=500

Y= C + I

S = Y−C

If you assume that wealth (W) and investment (I) remain constant (we are ignoring the fact that saving adds to the stock of wealth), what are the equilibrium levels of GDP (Y), consumption (C), and saving (S)? Now suppose that wealth increases by 100 percent to 1,000. Recalculate the equilibrium levels of Y, C, and S. What impact does wealth accumulation have on GDP? Many were concerned with the large increase in stock values in the late 1990s. Does this present a problem for the economy? Explain.

Reference no: EM131244343

Questions Cloud

Aerobics instructor at the local gym earning : Pat used to work as an aerobics instructor at the local gym earning $35,000 a year. Pat quit that job and started working as a personal trainer. Pat makes $50,000 in total annual revenue. Pat's only out-of-pocket costs are $12,000 per year for rent a..

A rightward shift of a supply curve is called : A likely example of complementary goods for most people would be. A rightward shift of a supply curve is called a(n)

What is the marginal propensity to consume in freedonia : SHOW THE MATH: You are given the following data concerning Freedonia, a legendary country: What is the marginal propensity to consume in Freedonia, and what is the marginal propensity to save? Calculate the saving function for Freedonia. Plot this sa..

The expected net salvage value of the system : Camptown? Togs, Inc., a? children's clothing? manufacturer, has always found payroll processing to be costly because it must be done by a clerk. The number of? piece-goods coupons received by each employee is collected and the types of tasks performe..

Saving and spending behavior depend in part on wealth : This chapter argues that saving and spending behavior depend in part on wealth (accumulated savings and inheritance), but our simple model does not incorporate this effect. Consider the following model of a simple economy: C = 50 + 0.8Y + 0.1W. What ..

Prices under third-degree price discrimination : You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Group 1’s elasticity of demand is -6, while group 2’s is -3. Your marginal cost of producing the product is $70. a. Determine your op..

Considering selling several units of homogeneous product : A monopoly is considering selling several units of a homogeneous product as a single package. A typical consumer’s demand for the product is Qd = 100 - 0.25P, and the marginal cost of production is $140. a. Determine the optimal number of units to pu..

What type of targeting is strategy is boyles strength : What type of targeting is strategy is Boyle’s Strength & Conditioning likely using? In thinking about Mike Boyle Strength & Conditioning’s target markets, which of the following segmentation variables is the company most likely using?

Firm essentially controlled the remaining share of market : Suppose the European Union (EU) is investigating a proposed merger between two of the largest distillers of premium Scotch liquor. Based on some economists’ definition of the relevant market, the two firms proposing to merge enjoyed a combined market..

User Account

All Pages