Answer to Question #231775 in Macroeconomics for baby

Question #231775

1. Assume a closed economy and no government. Also assume consumption C=50 + 0.8Yd and investment I=80

a) derive the equation for saving

b) find the equilibrium output

c) what is the implied multiplier

Expert's answer

"Solution"

"(a)\\\\\nY=C+I\\\\\nC=50+0.8Y_d\\\\I=80\\\\\nS=Y-C\\\\\nS=(50+0.8Y_d+80)-50+0.8Y_d\\\\\nS=130+0.8Y_d-50+0.8Y_d\\\\\nS=80+1.6Y_d\\\\\n(b)\\\\\nEQ \\ where\\ Y=C+I\\\\\nY=50+0.8Y_d+80\\\\\nY=130+0.8Y_d\\\\\nY-0.8Y=130\\\\\n0.2 Y=130\\\\\nY=650\\\\\n(c)\\\\\nm=\\frac{1}{1-mpc}\\\\\nm=\\frac{1}{1-0.8}\\\\\nm=\\frac{1}{0.2}\\\\\nm=5"