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Consider a closed economy without government spending or taxes. The equilibrium value of output in each period is determined by the equality of (the value of) output and expenditure. Saving in period t is given by S(t) = s · Y(t) and investment expenditure in period t + 1 is given by I(t + 1) = a + b · Y(t), for all values of t. a is a positive constant, s and b are positive constants less than unity and Y(t) is the value of output in period t. What relation must hold between the values of s and b for there to exist a value of output in this economy, which once achieved in a time period will continue to persist in subsequent periods of time?
Also written as: Consider a closed economy without government spending or taxes. The equilibrium value of output in each period is determined by the equality of (the value of) output and expenditure. Saving in period t is given by S(t) = s * Y(t) and investment expenditure in period t + 1 is given by I(t + 1) = a + b * Y(t), for all values of t. a is a positive constant, s and b are positive constants less than unity and Y(t) is the value of output in period t. What relation must hold between the values of s and b for there to exist a value of output in this economy, which once achieved in a time period will continue to persist in subsequent periods of time?
Keynesian cross and the multiplier has come up 167 times in 7 exams since 2006.
Question from the JNU SSS 2017 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.