an economy where the various components of expenditure follow these equations: C = 10 + 0.8Yd I = 500 %3D G = 100 X = 300 M = 0.1Y T = 0.1Y A) Calculate the equilibrium level of GDP in this economy, highlighting what are the values of the Keynesian multiplier and the autonomous components of expenditure. Now assume that aggregate investment is also sensitive to movements of the interest rate: I = 500 – 2,000r %D The money supply is equal to 1,000 and money demand satisfies the following equation: Ma = 2Y – 8,000r B) Solve for the equilibrium levels of output and the interest rate. Explain why the equilibrium level of output is lower than the one obtained in (a). C) Suppose that the government increases the tax rate to 0.15. Calculate the equilibrium effects of this policy and provide an explanation with the help of appropriate diagrams. D) Now assume that the price level can adjust. Using appropriate diagrams, explain the short- run impact of the policy introduced in (v) on aggregate output and the price level and the mechanisms by which output will eventually return to its

an economy where the various components of expenditure follow these equations: C = 10 + 0.8Yd I = 500 %3D G = 100 X = 300 M = 0.1Y T = 0.1Y A) Calculate the equilibrium level of GDP in this economy, highlighting what are the values of the Keynesian multiplier and the autonomous components of expenditure. Now assume that aggregate investment is also sensitive to movements of the interest rate: I = 500 – 2,000r %D The money supply is equal to 1,000 and money demand satisfies the following equation: Ma = 2Y – 8,000r B) Solve for the equilibrium levels of output and the interest rate. Explain why the equilibrium level of output is lower than the one obtained in (a). C) Suppose that the government increases the tax rate to 0.15. Calculate the equilibrium effects of this policy and provide an explanation with the help of appropriate diagrams. D) Now assume that the price level can adjust. Using appropriate diagrams, explain the short- run impact of the policy introduced in (v) on aggregate output and the price level and the mechanisms by which output will eventually return to its

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The chart below gives the data necessary to make a Keynesian cross diagram. Assume that the tax rate is 0.4 of national income, the MPC out of after-tax income is 0.9, investment is 58, government spending is 60, exports are 40, and imports are 0.1 of after-tax income. Alt Text: This chart contains the following columns: National Income, After-tax income, Consumption, I+G+X, Minus Imports, and Aggregate Expenditures. The National Income Column contains the following values for each of the following rows: 100, 200, 300, 400, 500, and 600. The only other value provided is the consumption, 104, for national income, 100. What does consumption equal when income equals 600? Group of answer choices a. 324 b. 374 c. 540 d. 104
Suppose the aggregate consumption function is represented by C = £1,000 + 0.5*YD, where YD is disposable income, and there are no taxes or transfers. Using the income-expenditure model, what increase in autonomous consumption must occur for equilibrium output to increase by £1,000? Select one: a. £200 b. £500 c. £100 d. £250
This question has four parts, here is the fourth and final part. 1.4. Create a graph for the aggregate expenditures (AE) model in Excel using the data from Table 1: A Private Closed Economy. (table 1 is in the attachment) tips: Remember, the 45degree line (also known as the Keynesian Cross) is a tool that shows how differences in aggregate expenditures and real GDP can affect business inventories which will affect future levels of real GDP. Aggregate expenditure and GDP are both function of consumption, investment, government spending, and net exports. So, the equations for the two are identical: Y = C + I + G + NX, and AE (aggregate expenditure) = C + I + G + NX For private closed economy the equation is: Y = C + I , and AE (aggregate expenditure) = C + I
Stiller 1. Suppose an economy is represented by the following equations. Consumption function C = 100 + 0.8Yd Planned investment I = 38 Government spending G = 75 Exports EX = 25 Imports IM= 0.05Yd Autonomous Taxes T = 40 Planned aggregate expenditure AE = C + I + G + (EX - IM) a. By using the above information calculate the equilibrium level of income for this economy, b. Calculate the value of expenditure multiplier. c. Suppose that government spending is increased by 5, what will happen to the equilibrium income level?
Economics 1. Graphing the consumption function from the MPC Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.75. That is, if disposable income increases by $1, consumption increases by 75c. Suppose further that last year disposable income in the economy was $500 billion and consumption was $400 billion. On the following graph, use the blue line (aircle symbol) to plot this economy's consumption function based on these data. (?) 700 600 300 -100 400 500 600 700 100 200 300 DISPOSABLE INCOME (Blions of dotans) From the preceding data, you know that the level of savings in the economy last vear was s billion and the marginal propensity to save in this economy is Suppose that this year, disposable income is projected to be $700 billion. Based on your analysis, you would expect consumption to be S billion and savings to be S billion, CONSUMPTION (Bilions of dolars)
We again assume asimple closed economy with GDP of 100 and:c0(autonomous consumption) = 20c1 (marginal propensity to consume) = 0.6I (investment) = 20.a) Now assume that c0falls by 5 (i.e. 5% of GDP), i.e. for any given level of output,consumption will fall by 5. Show the implied fall in the AD function in yourdiagram and show that output will fall by more than 5.b) Show that the multiplier is equal to 2.5, and hence that, in the new equilibrium,output will have fallen by 12.5 (i.e. by 12.5%)c) How big would the impact be if, say, c1 = 0.4 or c1 = 0.8? Explain the difference.
Assume a simple Keynesian macro model:AE = C + I C = 100 + 0.75Y I = 200i) Find the equilibrium level of income. Show the equilibrium on a graph. ii) Calculate the simple multiplier and find the effect on the equilibrium level of income of a change in the level of planned investment from 200 to 150 by using a multiplier.
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In the Keynesian model, the consumption function is C = 0.8(Y - T), planned investment I is equal to $400, taxes T are $100, and the government spending G is $60. Suppose the current level of output is. Y = $1,850. Are firms in this economy experiencing an unexpected change in inventory? If yes, by how much? %3D
Consider the following planned aggregate expenditure function: AEp=1000+0.8Y 1. Calculate the income-expenditure equilibrim real GDP, Y*, for this economy. Illustrate the equilibrium real GDP on a diagram below. Label the equilibrium point E. 2. Explain how an increase in uncertainty due to the collapse of multiple banks in the economy affects consumption and firm investment spending. Also explain what effect these changes would have on AEp and Y*. Show the effect on your diagram in part 1. 3. Suppose following the events above consumption and investment spending change by 220. By how much would Y* change eventually? Calculate and explain. 4. If the federal government wants to get the economy back at producing Y* you found in part 1 by adjusting its purchases of goods and services (G) by how much would it have to change G? (Hint: use the multiplier to calculate).
In a simple economy consumption is specified as C = 200 + 0.75 Yd. What is the multiplier for this economy? What is its saving function? Explain the components of the Aggregate demand function?
Use the Keynesian cross model to predict the impact of an increase in government purchases on equilibrium GDP. State the direction of the change and give a formula for the size of the impact. An increase in taxes shifts the planned expenditure function downward. The change in income is given by AY= ΔΥ= -MPC 1-MPC An increase taxes shifts the planned expenditure function upward. The change in income is given by -MPC 1-MPC AY= XAT An increase in taxes shifts the planned expenditure function inward. The change in income is given by AY= 1 1-MPC XAT 1 1-MPC The direction of the shift is undetermined without knowing the slope of the PE function. The change in income is given by XAT XAT