Blank 1: rise/fallBlank 2: 1.25 billion, 2.5 billion, 0.62 billionBlank 3: decrease/increase Blank 4: 1 billion, 1.2 billion, 2.5 billionBlank 5: automatic stabilizer, liquidity preference, crowding out, multiplier Please find all blanks and solve graphs. 5. Fiscal policy, the money market, and aggregate demandSuppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have leftover. The following graph plots the economy's initial aggregate demand curve (AD1).Suppose now that the government increases its purchases by $5 billion.Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place.Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD1. You can see the slope of AD₁ by selecting it on the following graph.?PRICE LEVEL116114112110108106104102100100AD1105130115120125OUTPUT (Billions of dollars)110135 140-AAD 2AD 3The following graph plots equilibrium in the money market at an interest rate of 7.5% and a quantity of money equal to $45 billion. SShow the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph.(?)INTEREST RATE15.012.510.07.55.0F2.50015Money Supplyknown as theMoney Demand304560MONEY (Billions of dollars)7590Money DemandMoney SupplySuppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on thechanges made to the money market in the previous scenario, the new interest rate causes the level of investment spending to fallbyTaking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded tobyat every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is▼ effect.Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3) after accounting forthe impact of the increase in government purchases on the interest rate and the level of investment spending.

It is given The hypothetical economy in which households spend $0.50 of each additional dollar they…

Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. (?) INTEREST RATE 15.0 12.5 10.0 7.5 5.0 2.5 0 0 15 Money Supply known as the Money Demand 30 45 60 MONEY (Billions of dollars) 75 90 Money Demand 1 Money Supply Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to fall by Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to by at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is effect. Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3) after accounting for the impact of the increase in government purchases on the interest rate and the level of investment spending.

Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. (?) INTEREST RATE 15.0 12.5 10.0 7.5 5.0 2.5 0 0 15 Money Supply known as the Money Demand 30 45 60 MONEY (Billions of dollars) 75 90 Money Demand 1 Money Supply Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to fall by Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to by at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is effect. Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3) after accounting for the impact of the increase in government purchases on the interest rate and the level of investment spending.

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 4TY

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PRICE LEVEL Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD₁). Suppose now that the government increases its purchases by $2 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD₂) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD1. You can see the slope of AD₁ by selecting it on the following graph. 116 114 112 110 AD₁ 108 106 104 12 102 100 100 102 104 106 108 110 112 114 116 38.3¢ AD 3 (?)
3. Suppose an economy had aggregate demand components with the following relationships: Consumption Spending, C-140 +0.60*(DY) Investment Spending, I-25 +0.15"Y Government Spending, G-0 Net Export Spending, X=0 Tax Collections, Tx = 0 a. What is the equilibrium income for this economy (Show your work)? b. If the Government decided to Increase G spending by 6, what would be the new equilibrium income for this economy (Show your work)? Page 2 bed tooing c. If instead the Government decided to Reduce Tx (taxes) by 10 (i.e., send checks to people), what would be the new equilibrium income for this economy (Show your work)? d. If instead the Government decided to Increase G spending and Increase Tx (taxes) by 20, what would be the new equilibrium income for this economy (Show your work)?
Suppose the following table shows the components of aggregate expenditure for an economy when disposable income is $200 billion and when it is $400 billion: Disposable Income $200 billion $400 billion Consumption $300 billion $400 billion Investment $100 billion $100 billion Government Purchases $175 billion $175 billion Net Exports $200 billion $180 billion Aggregate Expenditure $775 billion $855 billion On the following graph, use the blue curve to plot government purchases as a function of disposable income:
3. The consumption function Suppose that national income in a country is $30 billion, taxes paid by households is $10 billion, household consumption is $18 billion, and the marginal propensity to consume (MPC) is 0.8. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. CONSUMPTION (Billions of dollars) 50 45 40 35 30 25 20 15 10 5 0 0 5 + + + 10 15 20 25 30 35 40 DISPOSABLE INCOME (Billions of dollars) O $25.2 billion $26.8 billion $24.4 billion 45 0.8, Suppose now that country's national income increases to $34 billion. Assuming the amount paid in taxes is fixed at $10 billion and that MPC = what will be the new household consumption? $21.2 billion 50 Consumption Function (?)
Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD1). Suppose now that the government increases its purchases by $3.5 billion. of Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (ADs) is parallel to ADj. You can see the slope of 4D, by selecting it on the following graph. Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $2 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to_____ Y by______ Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded…
The following table shows the real output demanded and supplied at various price levels in a hypothetical economy. Real Output Demanded (Billions of dollars) 20 40 60 100 160 Price Level (Index number) 160 120 80 40 20 Real Output Supplied (Billions of dollars) (Billions of dollars) 170 160 140 100 Note: Line segments will automatically connect the points. 40 On the following graph, use the blue points (circle symbols) to plot the aggregate demand (Initial AD) curve for the economy. Then use the orange points (square symbols) to plot the short-run aggregate supply (SRAS) curve for the economy.
2. Equilibrium The following table shows the real output demanded and supplied at various price levels in a hypothetical economy. Real Output Demanded Price Level Real Output Supplied (Billions of dollars) (Billions of dollars) (Index number) (Billions of dollars) 50 80 400 75 60 350 125 40 275 175 30 175 350 20 50 On the following graph, use the blue points (circle symbols) to plot the aggregate demand (Initial AD) curve for the economy. Then use the orange points (square symbols) to plot the short-run aggregate supply (SRAS) curve for the economy. Note: Line segments will automatically connect the points. 100 Initial AD 80
Assume that, without taxes, the consumption schedule for an economy is as shown in the first two columns of the table below. Suppose that a lump-sum (regressive) tax of $10 billion is imposed at all levels of GDP. a. Calculate the tax rate at each level of GDP and enter the tax, disposable income, consumption, and tax rate in the table.Instructions: For the tax, disposable income, and consumption after tax, enter your answers as whole numbers. For the tax rate, round your answers to 2 decimal places.SEE PICTURE!!! b. Compare the MPC and the multiplier with those of the pretax consumption schedule. Instructions: For the MPC, round your answers to 1 decimal place. For the multiplier, enter your answers as whole numbers. SEE PICTURE!!!
The aggregate demand function: yad =C+1+G₁ = 500+ 0.75Y is plotted on the graph to the right. The graph also shows the 45° line where aggregate output Y equals aggregate demand yad for all points. What happens to aggregate output if government spending rises by 100? The equilibrium level of output rises by $ billion. (Round your response to the nearest billion.) Consumption Expenditure, C ($ billions) 3000- 2800- 2600- 2400- 2200- 2000- 1800- 1600- 1400- 1200- 1000- 800- 600- 400- 200- 0- 0 yad =C+I+G₁ = 500 +0.75Y Y = yad 45° 400 800 1200 1600 2000 2400 2800 Disposable Income ($ billions)
Suppose an economy is represented by the following equations.Consumption function C = 200 + 0.8YdPlanned investment I = 400Government spending G = 600Exports EX = 200Imports IM = 0.1YdAutonomous Taxes T = 500Marginal Tax Rate t=0.2Planned aggregate expenditure AE = C + I + G + (EX - IM) By using the above information calculate the equilibrium level of income for this economy and explain why fiscal policy becomes less effective in an open economy
2. The consumption function Consider a country with the national income of $12 billion, the amount of taxes paid by households of $3 billion, and household consumption of $7 billion. Suppose that the marginal propensity to consume (MPC) is 0.75. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. Hint: You should plot the first point where household consumption equals $7 billion. Then, plot the second point when real disposable income rises by $4 billion. REAL CONSUMPTION (Billions of dollars) 20 18 16 + 14 12 10 0 0 2 4 6 8 10 12 14 16 18 20 REAL DISPOSABLE INCOME (Billions of dollars) -0 O $7.75 billion O $9.75 billion O $7.5 billion O $10.75 billion Consumption Function (?) Suppose now that country's national income increases to $13 billion. Assuming the amount paid in taxes is fixed at $3 billion and MPC= 0.75, what will be the new household consumption?
Assume the Potential GDP is $15 trillion dollars. Use the table below to answer the following questions. Assume all values represent trillions of dollars. Use the table to create two graphs: 1. aggregate expenditure model and 2. an aggregate supply aggregate demand model. Note that the equilibrium in the table above will determine your real GDP and your potential GDP should be plotted in both graphs. What type of macroeconomic equilibrium does this economy reflect? Note that the multiplier is 2 because this economy has imports. If Investment expenditures increase by $2.5, how much does GDP increase? Does the increase in investment expenditures from part C result in a full employment equilibrium? Why? Graphically show the effects from part C in our Aggregate Expenditure Model and Aggregate Supply-Aggregate Demand Model.