|4 of 15 (5 complete) HW Score: 27.78%, 4.17 of 1 Text Problem 4.4 Question Help
ID: 1102712 • Letter: #
Question
|4 of 15 (5 complete) HW Score: 27.78%, 4.17 of 1 Text Problem 4.4 Question Help Consider the following model of a very simplo economy Household saving and investment behavior depend in part on wealth (accumulated savings and inheritance). In the late 1990s many wore concened with very large increases in stock values (a form of wealth) and its possible effect on seving and investment The fo lowing consumption function noorporates weath as a dotem na t of consumption. We have the following n mation on consumpton C i d n eat onto C- 40+0.80Y+0.OTW 1-200 ·We 1,000 We are ignoning the fact that saving adds to the stock of wealth. Calculate the values of equilbrium Y. C, and saving (3).(Enter your responses as integers) Ys $1.550 C $ 1,350 s $ 200 Suppose that wealth increases by 60 percent Calculate the values of equilibium Y, C, and S. (Enter your responses as New Y = New C-S New S-SLExplanation / Answer
New Y = $1760
New C = $1560
New S = $200
Explanation:
When wealth increases by 60%, the new W = 1600
C = 40 + 0.80Y + 0.07(1600)
C = 40 + 0.80Y + 112
C = 152 + 0.80Y
I = 200
At equilibrium,
Y = C + I
Y = 152 + 0.80Y + 200
Y = 352 + 0.8Y
Y - 0.80Y =352
0.20Y = 352
Y = 352 / 0.20
= $1760
C = 152 + 0.80(1760)
= $1560
At equilibrium, S = I = $200
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