ECN 302 Study Guide - Midterm Guide: Loanable Funds, Consumption Function, Parsec

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4 Dec 2018
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In the exam you will be expected to answer (all the parts of ) only two of three questions. Consider a closed economy in which aggregate output, y0, is given by. Y0 = f (k0, l0), where k0 and l0 are the xed (exogenous) supplies of labor and capital. ( a) some basic concepts. ( i ) output. Equation ( ) says that output, y0, is constant. Is it exogenous or endogenous in this model? ( ii ) income and expenditure. According to the national accounts identity, in a closed economy, income and expenditure are related as. Y e c + i + g. Brie y, explain why is this so? (1) ( b) consumption. Given output is xed at y0, consump- tion is also xed at some initial value c0. Suppose the level of taxation increases by t to. Following the increase in taxes, the new level of consumption is predicted to be.

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