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Homework answers / question archive / Consider the following model of a very simple economy: C= 10 +
Consider the following model of a very simple economy: C= 10 + .75Y +.04W 1 = 100 W = 1000 Y = C +1 S = Y-C If you assume that wealth (W) and investment (1) remain constant, we are ignoring the fact that saving adds to the stock of wealth. What are the equilibrium levels of GDP (Y) consumption (C) and saving (S)? • Now suppose that wealth increases by 50% to 1500, recalculate the equilibrium levels of Y, C and S. • What impact does wealth accumulation have on GDP?
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