This chapter argues that saving and spending behavior dependin part on wealth (accumulated savings and inheritance), butour simple model does not incorporate this effect. Consider thefollowing model of a very simple economy:C = 10 + .75 Y + .04 WI = 100W = 1,000Y = C + IS = Y – C If you assume that wealth ( W ) and investment ( I ) remain constant(we are ignoring the fact that saving adds to the stock ofwealth), what are the equilibrium levels of GDP ( Y ), consumption( C ), and saving ( S )? Now suppose that wealth increases by50 percent to 1,500. Recalculate the equilibrium levels of Y, C ,and S . What impact does wealth accumulation have on GDP?Many were concerned with the very large increase in stockvalues in the late 1990s. Does this present a problem for theeconomy? Explain.
Originally posted 2017-02-16 17:04:48. Republished by Blog Post Promoter