Consider two standard Keynesian models. In Model 1, there are two types of consumers, Type A, who have low marginal propensities to consume, and Type B, who have high marginal propensities to consume. In Model 2, there are only Type B consumers. Then, an increase in the exogenous government purchases would lead to higher output in Model 1 than in Model 2.
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- b. From the Intertemporal Choice Model, many theories (non-Keynesian theories ofConsumption) came into being. Using graphical and mathematical expressions, compareand contrast the following theories on consumption behaviours:i. Franco Modigliani: Life-Cycle Hypothesisii. Milton Friedman: Permanent-Income Hypothesisiii. Robert Hall: Random Walk Hypothesis1 Fully develop (mathematically and graphically) the Keynesian Cross (Expenditures=Output) model. Be explicit regarding what variables are endogenous and what variables are exogenous.hello, so ive already asked this question but i dont understant the answer that i was given. This is what I have so far: true or false: "tax cuts directed at higher income individuals will do more to stimulate the economy than those directed to lower income individuals, in the keynesian model." my reasoning with this is that its true? can you explain this to me? wouldnt the economy be stimulated more if it was given to a lower income individual because they are most likely to spend it? ANSWER I WAS GIVEN: Step 1 According to Keynes, the economy will be an unstoppable machine operating at maximum capacity if people did not save something. To allow people to spend more, Keynesians suggested tax savings. The Keynesian model, established by British economist John Maynard Keynes portraying savings as a drain on the economy and thus making deficit spending appear superior. However, unless someone keeps all of his or her savings in cash, which is unusual, savings are invested, either by…
- in a closed economy with no government, where aggregate demand is determinedby autonomous consumption, investment (which is independent of output), and themarginal propensity to consume.a) Given that autonomous consumption is 20, investment is also 20, and the marginalpropensity to consume is 0.6, write out an equation for aggregate demand (AD) in thiseconomy. b) Given this aggregate demand equation, and the equilibrium equation Y = AD, usealgebra to find the equilibrium level of Y. c) Draw a diagram with output (Y) on the x-axis and aggregate demand (AD) on the yaxis. Draw two lines on this diagram: (i) Y = AD, and (ii) the aggregate demandfunction from part (a). Label the intercept of the AD line, and the point where the twolines intersect, with numerical values. (3 marks)d) Suppose that the marginal propensity to consume falls from 0.6 to 0.5. What wouldthe new equilibrium level of Y be? Illustrate your answer in the diagram you drew forpart (c). (2 marks)e) Calculate the value of…1. Consider the following simple Keynesian model, (i) Rewrite the model into matrix form with Y, C and I as endogenous variables and Go and i as exogenous variables. (The coefficient matrix must be a 3 by 3 matrix.) Y=C+I+Go C = 200+ 0.8Y I= 1000-2000 (ii) Compute the equilibria Y*, C* and I* as functions of Go and i using Cramer's rule. 8Y* (iii) Find and di ƏY* ƏGo (iv) Give an economic interpretation of national income? ƏY* " ƏGo what should the government do if it wants to raisePrompt We have been discussing major macroeconomic concepts like the ADAS Model and Fiscal Policy. This is an opportunity to apply that knowledge to a real-world scenario. Choose one of the following scenarios and identify whether it is an example of a recessionary economy or inflationary economy. Next, analyze possible Neoclassical solutions for it. Then, analyze possible Keynesian solutions for it. What would the impact on the economy be in the short-run? Long-run? Scenario 1: An increase in the unemployment rate to 7.4% has occurred. Inflation has increased causing a decline in consumer spending. Exports have declined by more than $4 billion. This has caused a decrease in GDP by 3.7%. Scenario 2: An increase in consumer and government spending has occurred. This has increased GDP by 4.4%. Currently, inflation rate has increased to 1.6%. Unemployment has remained at 5.5%. Scenario 3: An increase in the stock market by 26.5% has occurred. Companies are stockpiling the earnings…
- Let’s see whether the Keynesian conclusions hold under two differentscenarios.We still assume that (1) Prices were sticky, (2) Money market always clear. Now, instead of assuming that output isdemand determined we use the assumption that OUTPUT IS ALWAYS SUPPLY DETERMINED (in other words, if Y d isdifferent from Y s, then Y = Y s.)1. Under this new set up, starting from a classical equilibrium, what is the effect on the interest rate and on output ofa DECREASE in money supply?Look at Figure 3. Assume this aggregate demand diagram represents an economy with government, where: a = exogenous consumption b = the marginal propensity to consume t = the tax rate |= investment G = government spending Y = income Figure 3 Aggregate AD, demand AD, 45° Income Select the option that describes a possible scenario shown by the shift from AD, to AD, in Figure 3. Select one: O Rise in tax rate and rise in government spending. O Rise in tax rate and fall in government spending. O Fall in tax rate and fall in government spending. O Fall in tax rate and rise in government spending. ( Previous page Next page > PHILIPSEconomists from all theoretical persuasions criticized the American Recovery and Reinvestment Act.The“Stimulus Package” wasarguablyaKeynesian measure so why would a Keynesian economist be critical of it? Why would neoclassical economists be critical?
- Explain why the neoclassical economists believethat the government does not need to do much aboutunemployment. Do you agree or disagree? Explain.Consider two standard Keynesian models. In Model 1, there are two types of consumers, Type A,who have low marginal propensities to consume, and Type B, who have high marginalpropensities to consume. In Model 2, there are only Type A consumers. Then, a decrease in theexogenous taxes would lead to higher output in Model 2 than in Model 1Exercise 1 a) Use the equation for the circular flow of the real economy to give an overview of thedemand side components and tie players in the macroeconomy to each of thesecomponents.b) How can you use the equation for the circular flow to discuss the effect of fiscal policyand monetary policy?c) As a follow up from part b), discuss the statement: “During the pandemic, expansionarymonetary policy did not boost the economy as expected”.d) For the following two cases, use the equation for the real interest rate to give anexample for each case using numbers for real interest rate, nominal interest rateand inflation. Explain each number you select.Case 1: A situation where it is a real cost if you borrow money.Case 2: A situation where it is a real gain if you borrow money.e) Let GDP (Gross Domestic Product) as a simplification, only be one good, apples. Find theGDP deflator if nominal GDP = 100 and real GDP = 20 and explain these three numbersusing apples as an example.f) As a follow up…