This chapter argues that saving and spending behavior dependin part

Question
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