Assume a model with no foreign trade, and tax equals O, the consumption function is defined as C = 400+ 0.75 Y. If government spending decreases by $200, then: Multiple Choice income will decrease by $600 income will decrease by $800 income will increase by $800 income will increase by $200 income will increase by $150
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- The following are exogenous (not directly affected by income): G = 11 I = 4 X = M = 0 The consumption function is: C = k + cY, where k = 3, c = 0.8 Now we have to take that tax into account. Here is a way to think about it: Look at the consumption function. It says if you give me one more dollar of income I will spend 80 cents of it (mpc = 0.8). BUT I can only spend what I receive. I can only spend my after-tax or disposable income. With a 10% tax, I don't receive Y I receive 90% of Y or Y*(1-t) where t = 10% or 0.1. Let's define disposable income as Yd where Yd = Y*(1-t). Therefore we restate our consumption function as C = k + cYd Now we have, in this case, C = k + cYd or C = 3 + 0.8Yd or C = 3 + 0.8*(Y*[1-0.1]) or C = 3 + 0.72Y. Now what is the equilibrium GDP?True or False? In the long-run general equilibrium, MPK = MPL.Write down the Planner’s problem, as well as the Lagrangian. (Hint: There should be two constraints because aggregate consumption of each good cannot exceed the economy’s endowment.) Label the multipliers ϕ1 and ϕ2. What are the first order conditions of the Planner’s problem? (Hint: There should be 6.). Find the solution to the Planner’s problem and label the quantities (xpA; ypA) and (xpB; ypB). If we compare the first order conditions of the Planner’s problem to the first order conditions of a corresponding competitive equilibrium (CE), we can obtain a relationship between ϕx, ϕy, λ, px, and py so that the CE and the Planner’s problem give us the same solution. This is called decentralizing the Planner’s problem.Decentralize the Planner’s problem. (find the equilibrium prices and the value of λ so that the two problems have the same solution.) Can you relate this to the two welfare theorems?
- Assume that Consumption is C = c(Y-T); Taxes T = tY; Investment / = -bi; and Government expenditure (G) is exogenous. Determine the multiplier for an increase in the tax rate.Imagine this economy has a 10% tax on income. The following are exogenous (not directly affected by income): G = 11 I = 4 X = M = 0 The consumption function is: C = k + cY, where k = 3, c = 0.8 Now we have to take that tax into account. Here is a way to think about it: Look at the consumption function. It says if you give me one more dollar of income I will spend 80 cents of it (mpc = 0.8). BUT I can only spend what I receive. I can only spend my after-tax or disposable income. With a 10% tax, I don't receive Y I receive 90% of Y or Y*(1-t) where t = 10% or 0.1. Let's define disposable income as Yd where Yd = Y*(1-t). Therefore we restate our consumption function as C = k + cYd Now we have, in this case, C = k + cYd or C = 3 + 0.8Yd or C = 3 + 0.8*(Y*[1-0.1]) or C = 3 + 0.72Y. Now what is the equilibrium GDP? Give the answer to ONE decimal place.Q.1.6 Given the import function, Z = 300 + 2/3Y, which of the following statements iscorrect?(2)(a) The marginal propensity to save is 1/3;(b) The induced component is 300;(c) 2/3 is the proportion of any income spent on imports;(d) None of the statements is correct.
- Q2: 5. Suppose the following information represents current economic conditions and behavior in some cconomy: C= 400 + .75YD where Yp = Y - T, T = 400 and Y = 2000. a. First, graphically depict the above consumption function in C - Yp space (with C on the vertical axis and Yp on the horizontal axis). What does the vertical intercept represem? Explain. What is the slope of this consuniption function? Explain. With Y = 2000, what is the level of consumption for this cconomy? Yp b. Assuming that Y does not change, graphically illustrate (in the above graph), and expluin the effects of a reduction in the marginal propensity to consume to .5. Calculate what happens to the level of consumption.If C = 12 + 4/5Y, I = 20, what is the values the marginal propensity to save? What is equilibrium level of Y? Show that in equilibrium S = I.Suppose the MPC is 0.8. The government wants to decrease Total Spending by $600. How should it change G to achieve this goal? Show your work?
- Assume that Consumption is C=CO+c(Y-T); Taxes T=tY; Investment 1-10-bi; and Government expenditure (G) is exogenous. Determine by how much equilibrium income changes in the case of an autonomous increase in consumer confidence.2) Economic Application of Integrals. a) Given the marginal propensity to import M' (Y) = 0.1 and the information that M = 20 when Y = 0, find the import function M(Y). b) Given the marginal propensity to consume C" (Y) = 0.8 + 0.1Y-1/2 and the information that C = Y when Y = 100, find the consumption function C(Y).Consider the following demand components: Consumption described as a following: 100 million USD as an autonomous level of consumption plus 95% of disposable income spends on consumption. I = 30 G=15 T= 20 (a)Assuming goods market equilibrium, show equilibrium level of output in this economy. (b)How much output increase, if G increase from 15 to 20, show your calculations.