Please show me how to solve step by step. Suppose that every additional five per
ID: 1235344 • Letter: P
Question
Please show me how to solve step by step.Suppose that every additional five percentage points in the investment rate (I/GDP) boost economic growth by one percentage point. Assume also that all investment must be financed with consumer saving. The economy is now assumed to be fully employed at
GDP $6 trillion
Consumption 5 trillion
Saving 1 trillion
Investment 1 trillion
If the goal is to raise the growth rate by 1 percent,
a. By how much must investment increase?
b. By how much must consumption decline for this to occur?
Explanation / Answer
a. By how much must investment increase? $50 billion = Investment 1 trillion * 0.05( or 5%) = $50 billion b. By how much must consumption decline for this to occur? $50 billion since its now being used for investments or $50 billion /Consumption 5 trillion = 1% Hopefully this answered your question, best of luck.