CHAPTER 9  DEMAND SIDE EQUILIBRIUM

TEST YOURSELF

2.   In question 2, the marginal propensity to consume is lower than it was in question 1 (0.6 versus 0.9), but in this case there is induced investment (investment which changes as GDP changes), while in question 1 investment was constant. The two changes cancel each other, and the expenditure schedule is the same in both questions. So Figure 1 applies to Question 2, and the equilibrium GDP is 3800.

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