Please show me how to solve step by step. Suppose that every additional five per

Question

Please show me how to solve step by step.
Suppose that every additional five percentage points in the investment rate (I/GDP) boost economic growth by one percentage point. Assume also that all investment must be financed with consumer saving. The economy is now assumed to be fully employed at

GDP $6 trillion
Consumption 5 trillion
Saving 1 trillion
Investment 1 trillion
If the goal is to raise the growth rate by 1 percent,

a. By how much must investment increase?
b. By how much must consumption decline for this to occur?

Explanation / Answer

a. By how much must investment increase? $50 billion = Investment 1 trillion * 0.05( or 5%) = $50 billion b. By how much must consumption decline for this to occur? $50 billion since its now being used for investments or $50 billion /Consumption 5 trillion = 1% Hopefully this answered your question, best of luck.

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