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1 Private consumption C in a small closed economy can be described by the expression C=5+(3/4
)Y stipulating its dependence of C on azgregate output Y. Planned investment by the private
sector is Ip=10 while government purchases and net exports are zero. 0) Obtain autonomous
consumption, the marginal propensity to save (MPS), the spending multipler iml. the equilibrium
GDP and the private savings 5 for this economy Gou may need to draw a consumption table for Y
leveis 0,10,20,1002. (ii) Anticipating a favorable effect on business of the end of the pandemic,
firms decide to double planned irvestment spending to expand capaciy. What will happen to the
GDP and to private savings? (ii) Confident about the signs of economic recovery observed in (ii),
people abandons any sign of austere bethavior and indulges in a lavish spending surge evidenced
by an increase in autonomous consumption from 5 to 10. What will happen to the equibrium GDP
and to private savings as a consequence of this behaviorai change? Obtain the new values of Y
and S as part of your answer. (iv) Using a single graph, describe the equilbriun GDP
correspondins to the scenarios described in parts (i), (i) and (ii). You may atzach a picture of the
graph to an email and send it the (v) Comparing (i) and (iii, can you conclude that abandoning
austerity has caused a squandering of painfully made savings? Explain why.

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1 Private consumption C in a small closed economy can be des.pdf

  • 1. 1 Private consumption C in a small closed economy can be described by the expression C=5+(3/4 )Y stipulating its dependence of C on azgregate output Y. Planned investment by the private sector is Ip=10 while government purchases and net exports are zero. 0) Obtain autonomous consumption, the marginal propensity to save (MPS), the spending multipler iml. the equilibrium GDP and the private savings 5 for this economy Gou may need to draw a consumption table for Y leveis 0,10,20,1002. (ii) Anticipating a favorable effect on business of the end of the pandemic, firms decide to double planned irvestment spending to expand capaciy. What will happen to the GDP and to private savings? (ii) Confident about the signs of economic recovery observed in (ii), people abandons any sign of austere bethavior and indulges in a lavish spending surge evidenced by an increase in autonomous consumption from 5 to 10. What will happen to the equibrium GDP and to private savings as a consequence of this behaviorai change? Obtain the new values of Y and S as part of your answer. (iv) Using a single graph, describe the equilbriun GDP correspondins to the scenarios described in parts (i), (i) and (ii). You may atzach a picture of the graph to an email and send it the (v) Comparing (i) and (iii, can you conclude that abandoning austerity has caused a squandering of painfully made savings? Explain why.