Consider the following data for a closed economy: Y = $12 trillion C = $8 trillion G = $2 trillion Spublic = $negative 0.50 trillion T = $2 trillion Now suppose that government purchases increase from $2 trillion to $2.60 trillion but the values of Y and C are unchanged. What must happen to the values of S and I? A. S and I increase by $0.60 trillion. B. S and I drop by $0.60 trillion. C. S increases by $0.60 trillion and I drops by $0.60 trillion. D. S drops by $0.60 trillion and I increases by $0.60 trillion.

Question

contestada

Respuesta :

andromache andromache · Answer 1 · 2019-10-04T07:44:16+02:00

Answer:

B. S and I drop by $0.60 trillion.

Explanation:

We know that

Y = C + I + G

$12 trillion = $8 trillion + I + $2 trillion

$12 trillion = $10 trillion + I

So, I = $12 trillion - $10 trillion

= $2 trillion

As the government purchases increase from $2 trillion to $2.60 trillion

and the rest of the things remain the same.

So New I = $12 trillion - $8 trillion - $2.60 trillion

= $1.4 trillion

So, the difference would be equals to

= $2 trillion - $1.4 trillion

= $0.6 trillion

The $0.6 trillion reflect fall in the investment

And the saving and the investment are equal to each other

Hence, the B option is the right answer