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In the context of the goods market, suppose an economy in which there is initially no investment
In the context of the goods market, suppose an economy in which there is initially no investment. Additionally, the following data are known: c=20 +cY G= 200. Y = 490. If the economy is in equilibrium, the Keynesian multiplier is: a) 3 b) 4 c) 2.2 d) none of the options e) 2 Suppose now that you consider establishing a program to encourage investment. For equilibrium production to increase by 9%, the investment must a) increase by 10%. b) increase by 9%. c) increase by 15%. d) 22. e) 20. f) 33. g) None of the options. h) be 44. i) increase by 20%.
Expert Solution
I. Ans...... c 2.2
Y= C + G , or 490 = 20+c1(490)+200 , or, 490c1=490—200 , or c1= 270/490=0.55 ( c1 is the MPC)
Multiplier = 1/(1—MPC) or Multiplier =1/1—0.55 = 1/0.45 = 2.22
II. ......e 20
Production ( output) , Y =490 its 9% = 490×(9/100)= 44.1 , so output is to be increased by (
Y)=44.1
Now, Multiplier =Y/I or, 2.2= 44.1/I , or I= 44.1/2.2 = 20 ( approx)
As previous investment is zero, so the investment is required to achieve new production is (0+20 )= 20
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