Answer to Question #231775 in Macroeconomics for baby

Question

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

Answer 1

$Solution$

$(a)\\ Y=C+I\\ C=50+0.8Y_d\\I=80\\ S=Y-C\\ S=(50+0.8Y_d+80)-50+0.8Y_d\\ S=130+0.8Y_d-50+0.8Y_d\\ S=80+1.6Y_d\\ (b)\\ EQ \ where\ Y=C+I\\ Y=50+0.8Y_d+80\\ Y=130+0.8Y_d\\ Y-0.8Y=130\\ 0.2 Y=130\\ Y=650\\ (c)\\ m=\frac{1}{1-mpc}\\ m=\frac{1}{1-0.8}\\ m=\frac{1}{0.2}\\ m=5$