1. a) Calculate the equilibrium GDP of a Keynesiandemand driven closed economy with autonomousinvestment and government expenditure. Derive theBalanced Budget Multiplier.the assumptioninvestment. Introduce the investment function 1=1. -0r,r is the real interest rate. Derive the IS curve. Ifb) NowrelaxonautonomouswhereM= aY - Brthe LM curve in this economy is Pthen derive theequilibrium output. Derive the multiplier effect andexplain. Would there be a crowding out?

The total supply of goods and services in the economy is determined by the factors of production in…

1. а) laté the equilibrium GDP of a Keynesian demand driven closed economy with autonomous investment and government expenditure. Derive the Balanced Budget Multiplier. b) Now relax the investment. Introduce the investment function !-1, -0r, where r is the real interest rate. Derive the IS curve. If assumption on autonomous M αΥ- βr the I M curve in this economy is P then derive the

1. а) laté the equilibrium GDP of a Keynesian demand driven closed economy with autonomous investment and government expenditure. Derive the Balanced Budget Multiplier. b) Now relax the investment. Introduce the investment function !-1, -0r, where r is the real interest rate. Derive the IS curve. If assumption on autonomous M αΥ- βr the I M curve in this economy is P then derive the

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a keynesian macromodel Y=(C0+G+I) / (1-c) where C0 is autonomus consumption, G is government consumption expenditure, I is investment expenditure, c is the marginal propensity to consume. Assume constant marginal productivity of labor. What will be the result of an increasing government consumption expenditure in this module, if not other paramiters are changed? a. Lower investment. b. Higher employment. c. Higher inflation. d. Lower employement.
Given a consumption function, C = co + cY, specified such that the marginal propensity to consume is 75%, how much will C increase by if Y increases by £3bn? a. £0.75bnb. £2,250mc. £2bn d. £1,500m
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Match the following terms ( terms are labeled 1-10 )to the correct definition(definitions are labeled a through J) aggregate consumption function, multiplier, planned aggregate expenditure (PAE), income-expenditure equlibrium GDP, marginal propensity to consume (MPC), consumption function, unplanned inventory investment, actual investment spending,inventory, autonomous spending A) The amount by which consumption rises when disposable income rise by one dollar marginal propensity to consume (MPC) B) The level of output (real GDP) at which output (real GDP) equals planned aggregate expenditure. income-expenditure equlibrium GDP C) The ratio of total change in real GDP caused by an autonomous change in aggregate spending. multiplier D) Total planned spending on final goods and services in the economy. aggregate consumption function E) The equation showing how individual household's consumer spending varies with its current disposable income. consumption function F) Consumption…
Consider a closed economy with no government, where aggregate demand is determined by autonomous consumption, investment (which is independent of output), and the marginal propensity to consume. a) Given that autonomous consumption is 20, investment is also 20, and the marginal propensity to consume is 0.6, write out an equation for aggregate demand (AD) in this economy. b) Given this aggregate demand equation, and the equilibrium equation Y = AD, use algebra to find the equilibrium level of Y. (2 marks) 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 demand function from part (a). Label the intercept of the AD line, and the point where the two lines intersect, with numerical values. d) Suppose that the marginal propensity to consume falls from 0.6 to 0.5. What would the new equilibrium level of Y be? Illustrate your answer in the diagram you drew for part (c). e)…
Please ONLY answer V,vi, vii and viii
Consider a keynesian macromodel Y=(C0+G+I) / (1-c) where C0 is autonomus consumption, G is government consumption expenditure, I is investment expenditure, c is the marginal propensity to consume. Assume constant marginal productivity of labor. What will be the result of an increasing government consumption expenditure in this module, if not other paramiters are changed? a. Lower investment. b. Higher employment. c. Higher inflation. d. Lower employement.
A decrease in autonomous consumption will 1) shift the aggregate expenditure function downward. 2) decrease the marginal propensity to save. 3) shift the consumption function upward. 4) change the slope of the consumption function.
the closed economy of temasik has the following characteristics: autonomous consumption is rm 100 *marginal propensity to consume is 0.9 * investment expenditure is rm 460 *taxes are constant and equal to rm 400 *goverment purchases of goods and services is rm400 a)find the equilibrium level of real GDP b)suppose the goverment cuts its purchases of goods and services to rm 300.using the multiplier formula,calculate the change in real GDP. c)suppose the goverment maintains its purcase of rm400 worth of goods and services and instead cuts taxes to rm 300. using the multiplier formula,calculate the change in real GDP.
Upon the 'multiplier effect' in the Keynes effective demand model, if the investment (I) is increased by 10 trillion yen, how much would the GDP (output) be increased additionally? Assume that the propensity to consume is 0.6 and the other exogenous factors remain unchanged.
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