Consider the Savings-Investment model involving: The Savings function: S = S0+s1Y+s2r; and the Investment function: I = I0+ir; where: Y = GDP, r = interest rate; and equilibrium occurs when Savings equal Investment. (i) Solve for the equilibrium GDP Y* (ii) Using your Y*, find the Investment-Multiplier dY*/dI0

Consider the Savings-Investment model involving: The Savings function: S = S0+s1Y+s2r; and the Investment function: I = I0+ir; where: Y = GDP, r = interest rate; and equilibrium occurs when Savings equal Investment. (i) Solve for the equilibrium GDP Y* (ii) Using your Y, find the Investment-Multiplier dY/dI0

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 5TY

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Consider the Savings-Investment model involving: The Savings function: S = S0+s1Y+s2r; and the Investment function: I = I0+ir; where: Y = GDP, r = interest rate; and equilibrium occurs when Savings equal Investment. (i) Solve for the equilibrium GDP Y* (ii) Using your Y*, find the Investment-Multiplier dY*/dI0
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