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Suppose that the economy is characterized by the following equations: C = 160 + 0.9Yd I...

Suppose that the economy is characterized by the following equations: C = 160 + 0.9Yd I = 125 G =125 T = 100 a. Solve for GDP (Y) (note this is a number, not a description) b. Solve for Disposable Income (Yd) (note this is a number, not a description) c. Given the equation for Consumption, what is the Consumption Multiplier? (note this is a number, not a description) d. What is the Marginal Propensity to Save? (note that this is a number not a description) e. How much is autonomous consumption? (note that this is a number, not a description) f. If Full Employment is achieved at 3900, should we use Expansionary Fiscal Policy or Contractionary Monetary Policy to achieve Full Employment?

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Answer #1

(e) Autonomous consumption =160 because C=160+0.9Yd = C0 +cYd

(f) expansionary fiscal policy should be used to achieve full employment so that Y reaches to $3900 with full employment.

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