Consider a Closed Economy to Which the Keynesian-Cross Analysis Applies $Y$

question 117

Essay

Consider a closed economy to which the Keynesian-cross analysis applies. Consumption is given by the equation C = 200 + 2/3(Y - T). Planned investment is 300, as are government spending and taxes. a. If $Y$ is 1,500 , what is planned spending? What is inventory accumulati on or decumulation? Should equilibrium $Y$ be higher or lower than 1,500 ?
b. What is equilibrium $Y$ ? (Hint: Substitute the values of equations for planned consumption, investment, and government spending into the equation $Y = C + I + G$ and then solve for $Y$ .)
c. What are equilibrium consumption, private saving, public saving, and national saving?
d. How much does equilibrium income decrease when $G$ is reduced to 200 ? What is the multiplier for government spending?