Recall the following equations which describe an IS-LM economy: C(Y - T) = C_1 +
ID: 1215664 • Letter: R
Question
Recall the following equations which describe an IS-LM economy: C(Y - T) = C_1 + b*(Y - T) I(r|) I_2 - D*r G = G_1, T - T_1 M^d = L_1 + C*Y - F*r real M^d = M/F Suppose the economy is described by the following equations: C(T - T) = 40 + 0.7 (Y_T) I(r) = 300 - 30r G = T = 150 M^d = 0.3 Y - 5r real M^d = 20/F So b = 0.7, d = 30, f = 5, and L_1 = 0. Note that we now use the real money supply, or real money balances, which is the nominal money supply divided by the price level. These equation give the following IS and LM curves: IS: r - 9.5 -1/100 Y LM: r = 0.06 Y 10/F What is the marginal propensity to save? If p = 10, use IS and LM to find equilibrium GDP, then find equilibrium consumption and investment. Describe one scenario in which autonomous investment could change. Derive the AD curve. Do this by solving for price.Explanation / Answer
Q4. Consumption function is written as follows -
C(Y-T) = C1 + b*(Y-T)
In this equation,
b = marginal propensity to consume
The given consumption function is as follows -
C(Y-T) = 40 + 0.7*(Y-T)
b or marginal propensity to consume = 0.7
Calculate marginal propensity to save -
Marginal propensity to save = 1 - Marginal propensity to consume
= 1 - 0.7
= 0.3
The marginal propensity to save is 0.3
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.