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mariarad [96]
4 years ago
10

assume that the marginal propensity to consume is 0.90 and autonomous consumption expenditures equals $100 billion. Further, ass

ume that planned investment spending is
Business
1 answer:
devlian [24]4 years ago
3 0

Answer:

  1. $4 trillion or $4,000 billion
  2. $3.5 trillion or $3,500 billion

Explanation:

1. Equilibrium Output or GDP is calculated by the expression;

Output or Y = Consumption + Investment + Government expenditure + Net exports

Net exports and Government expenditure are assumed to be 0.

Consumption  = 100 + 0.9Y

Investment = $300 billion

Y = 100 + 0.9Y + 300

Y - 0.9Y = 400

Y = 400/0.1

Y = $4,000 billion

2. Y = 50 + 0.9Y + 300

Y - 0.9Y = 350

0.1Y = 350

Y = 350/0.1

Y = $3,500 Billion

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A natural monopoly refers to a situation when one firm can cater to the entire market demand for a product. A natural monopoly can exist in an industry in because of high start-up costs, certain unique raw materials or processes or technologies that are required to run a business. In a natural monopoly, there is only one firm that benefits from very large economies of scale.

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