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- Consider the following model of an economy operating with fixed wages, prices and interest rates and hasexcess capacity. Adsume all figures are I Zambian kwacha. C=100+0.8yd, T=100+25Y, G=980 and I= 500 Where c is consumption, yd is disposable income, T is taxes net of transformers, G is government spending on goods and services and I is investments. A. Calculate the equilibrium level of national income B. Illustrate your equilibrium in the keyneasian cross diagran C. What is the value of the multiplier D. Is governnent running a surplus or a deficit E. Show the impact of a reduction in government spending by 80 on the equilibrium level of national income F. Illustrate your new equilibrium in the same Keynesian cross diagram as in b.CThe following equations describe an economy C = 100 + 0.75 Y. I = 50 – 25i where C' is aggregate consumption , Y is disposable income, I is aggre gate investment, Tis taxes, G is go vernment purchases and i is the int erest rate. Derive the IS curve for th T= G= 50 e economy.6.1.What is an AD-AS model and what does such a model as per the givendiagram essentially focus on?6.2.Discuss the diagram in detail by first explaining what leads to step Step 1(representing a shift in curves on the diagram) and indicating what occursto cause shifts in some of the curves. Then discuss Step 2 (whichrepresents other macroeconomic changes) and indicate what happens toother variables when there are shifts in some of the curves as per Step 1. 6.3.What, in general, do the points of intersection between the AS and AS2curves and the AD curve show?6.4.When the LAS curve moves to the right to LRAS2, what exactly do thepoints of intersection between the AS and AS curves and the AD1 curve,indicated as point 1 and point 2, reflect on the diagram?
- Suppose an economy can be represented by the folowing table, in which employment is in millons of workers and GDP and AE are expressed in billions of dollars: Employment 100 Real GDP Aggregate Expenditures 1275 1350 1425 1500 1575 1650 1200 105 1300 1400 1500 1600 1700 110 115 120 125 fut employment is 120 milion workers? What is its what kind of expenditure oap exists size? Suppose government spending, taxes, and net exports ane all independent of the level of rcal GDP. What is the multplier an ths economy? below the econemy's potential, what is the size of the recessionary expenditure qaptEconomics PIODiem set is dde OIT AprTO 1. Let the following equations characterize the economy (note the addition of a tax rate on output): Y = 500 C = 60 + 0.8(Y-T) |= 30 - r G = 100 T = 0.4Y a) Calculate national saving, private saving, and public saving. b) Obtain the mathematical expression for the AD in this particular economy. Draw the graph. c) Determine the equilibrium interest rate (you can use the loanable funds market). Draw the graph for the lonable funds market. d) If Government spending increases to 120, what is the effect on income? Draw the new equilibrium in a graph (old and new in same graph).LIBR The Aggregate Expenditure or Keynesian macroeconomics model is based upon the theory that the level of GDP in the economy is determined by the level of aggregate spending. True False
- COURSE: MACROECONOMICS - IS-LM and/or MUNDELL FLEMING MODELS Refer to 2 different models (and/or conditions) under which an increase in the amount of money circulating in the economy has a NULL impact on GDP. Then, refer to 2 different models (and/or conditions) under which an increase in the amount of money circulating in the economy has a MAXIMUM impact on GDP. EXPLAIN very briefly the mechanism by which each model generates that NULL or MAXIMUM impact on GDP. Hint: 2 conditions under increase of M (money) and how impact null (zero) and maximum on GDP. Example, considering both fiscal or monetary policies or liquidity trap model. Please graph and explain on detail both cases.Inventories typically increase starting at the beginningof recessions, and begin to decline near the end ofrecessions. What does this say about the relationshipbetween planned spending and aggregate output overthe business cycle?Consider an economy called Xanadu for which desired aggregate consumptiondepends on income, Y. and the real interest rate, r, according toCd =100+0.7Y - 200r.Xanadu's GDP is Y = 1000 and government spending on goods and services is G=180. Xanadu's desired future capital stock is given byK* = 140 - 100ucwhere luCdenotes the user-cost of capital. The price of capital is PK =2, thephysical depreciation rate is d =0.1 and the existing capital stock is K0= 50. Trapital stock between any period t and the following period t+1 evolves accordng toKt+1 = It+(1-d)Kt where It the level of investment. Assume throughout that net factor payments from abroad (NFP) is equal to zero.Suppose instead that Xanadu is a small open economy facing a world interest rate of 1%. It follows that Xanadu's current account position is equal toA) -16B) -51C) -6D) -8
- What is the key difference between the IS-MP-PC model and the AD/AS model? O In AD/AS model, the government can not borrow In AD/AS model, the central bank can not change the interest rate O In AD/AS model, the central bank sticks to a rule O In AD/AS model, the government can not change its expenditureGiven the macro economic data below, draw a graph to illustrate if there is arecessionary gap in the given economy.Real GDP $1000BConsumption (100K is Autonomous) $600BInvestment $100BGovernment Spending $200BExport $50BImport $50BMarginal Propensity to Consume 0.50 AD (Expenditure) 45 degree AD = AS $ 1000B AS (Real GDP) a. Calculate the size of the recessionary gap in the economy. b. What would happen to the recessionary gap if the government cut incometaxes by $50B? c. What would happen to the recessionary gap if the Fed increased discountrates? Explain your answer.Which of the following will NOT shift the ADT curve? O a. A rise in government spending O b. A rise in exports Ос. A rise in interest rates O d. A rise in consumer confidence
