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"YGovernment Spending, G-0Net Export Spending, X=0Tax Collections, Tx = 0a. 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 equilibriumincome for this economy (Show your work)?Page 2bed tooingc. If instead the Government decided to Reduce Tx (taxes) by 10 (i.e., send checks to people), whatwould 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, whatwould be the new equilibrium income for this economy (Show your work)?

a. The computation of equilibrium income:Using the provided equations for consumption spending,…

Answered: 3. Suppose an economy had aggregate…

MACROECONOMICS

14th Edition

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Author:Baumol

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Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 4TY

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4. Suppose an economy had aggregate demand components with the following relationships: Consumption Spending, C=195+0.80° (DY) Investment Spending, I-25 +0.10°Y Government Spending, G-6+0.15*Y Net Export Spending, X-14-0.05*Y Tax Collections, Tx = -20+0.25*Y a. What is the equilibrium income for this economy (Show your work)? b. At the equilibrium income, what is the size of the government surplus (or deficit)? den Cal Page 3 601 c. If the Government decided to Increase G spending by 15, what would be the new equilibrium income for this economy (Show your work)? d. If instead the Government decided to Reduce Tx (taxes) by 6, what would be the new equilibrium income for this economy (Show your work)? yanoM e. If instead the Government decided to Increase G spending and Increase Tx (taxes) both by 30, what would be the new equilibrium income for this economy (Show your work)?
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)
Figure 3-3 45° Planned Expenditure 200 + 0.75Y 45 Income (Y) In the figure above: a. Find the equilibrium GDP. What happens to the left of that equilibrium? What happens to the right? b. When income is $1,000, what is the unplanned inventory? c. What is the GDP multiplier? d. What is the tax multiplier? e. How much should government expenditures increase if the government wants to increase GDP from the equilibrium level found at point a) to 1,000? f. How much should taxes decrease if the government wants to increase GDP from the equilibrium level found at point a) to 1,000? Planned Expenditure
Consider the following economy: C = 300 + 0.8 (Y – T) I = $300 G = $200 and T = $250 What is the equilibrium level of national income? What is the change in national income, if only government spending increases by $10? What is the government spending multiplier? What is the change in national income, if only taxes increase by $10? What is the tax multiplier? Based on (b) and (c), does the balanced budget multiplier theorem hold? What is the change in national income, if both government spending and taxes increase by $10 each?
1. Suppose that the economy can be described by the following equations: C= 400 + (8/9)*DI I= 300 G= 800 T=(1/2)*Y (X -М) 3 0. a. If national income (Y) increased by $1, by how much would consumption increase? What is the name of this concept? b. Find the equilibrium level of output. c. The budget for this fiscal year increases government spending by $50. i) Sketch the effect of the increase in government spending. ii) Calculate the new equilibrium level of income. iii) Calculate the change in income and compare to the increase in government spending. Comment. iv) Given your numerical answer in part (iii), calculate the change in national income when government spending increases by one dollar. v) Derive the actual value of the fiscal multiplier using an algebraic equation. Compare to part (iv). Now G assumes its original value of G = 800. d. Congress decreases the tax rate from (1/2) to (1/4) i) Sketch the effect of the decrease in the tax rate. ii) Calculate the new equilibrium level…
C = 450 + 0.4YI = 350G = 150X = 70Z = 35 + 0.1YT = 0.15YYf = 1550(Hint: use the multiplier method)Q.2.4 Calculate the tax revenue to the government of this country when the economyremains in equilibrium.Q.2.5 Calculate what the new equilibrium income should be if the government of thiscountry decides to cancel all taxes, implying the tax rate would now be 0%.Q.2.6 Before the government decreased the tax rate, how much of governmentspending was required to bring the economy to full employment?
Figure 8-24. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. 9 Tax Revenue a∞rontm ~ - X 8 7 6 5 4 3 2 1 A B Refer to Figure 8-24. Tax revenue would [I B. All of the above are correct. A. decrease if the economy began at point C and then the tax rate was increased. Answer Key:B Tax Size OC. decrease if the economy began at point B and then the tax rate was decreased. D. increase if the economy began at point F and then the tax rate was decreased.
Assume that the economy can be modeled as follows: AE = C + I + G C = 300 + .6Yd I = 400 G = 100 T = 200 Y=1700 consumption=1200 7) Imagine the government would like to increase equilibrium GDP to 2,000, what would it have to set the level of government spending to? 8) What is the size of the spending multiplier? 9) What is the size of the tax multiplier?
What is the spending multiplier for the north laurisian economy
1. Suppose that the economy can be described by the following equations: C = 400 + (8/9)*DI I = 300G = 800T = (1/2)*Y (X – M) = 0. a. If national income (Y) increased by $1, by how much would consumption increase? What is the name of this concept?b. Find the equilibrium level of output.c. The budget for this fiscal year increases government spending by $50. i) Sketch the effect of the increase in government spending.ii) Calculate the new equilibrium level of income.iii) Calculate the change in income and compare to the increase in government spending. Comment.iv) Given your numerical answer in part (iii), calculate the change in national income when government spending increases by one dollar.v) Derive the actual value of the fiscal multiplier using an algebraic equation. Compare to part (iv).Now G assumes its original value of G = 800.d. Congress decreases the tax rate from (1/2) to (1/4) i) Sketch the effect of the decrease in the tax rate. ii) Calculate the new equilibrium level of…
. Suppose the United States economy is repre- sented by the following equations: Z = C + I + G, C = 500 + 0.75YD, T = 600, I = 300, YD = Y − T , G = 2000 Given the above variables, calculate the equilibrium level of output. assume that government spending decreases from 2000 to 1900. What is the new equilibrium level of output? How much does income change as a result of this event? What is the multiplier for this economy?
The economy of Godzillaland is represented by the following:C=50+0.25Y d , T=1000, G=1000, I=100 (a) Calculate the equilibrium level of output. Graph your solution. (b) If the government spending increases by 50 what is the new equilibrium level of output? Use the government spending multiplier. (c) If the government increases taxes by 50 what is the new equilibrium level of output? Use the tax multiplier. (d) If the government increases taxes and spending by 50 what is the new equilibrium level of output? (e) Calculate the equilibrium level of output in case where taxes depend on income according to the following: T=-25+0.125Y.

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