Assume the economy is initially in goods market equilibrium with all variables at their expected levels. Considering only the short run implications for the economy, which of the following statements are true: a) Following a cut in the proportional tax rate, national income rises and the budget balance improves. b) If the multiplier estimated by researchers from the data is less than one, then following a rise in government spending, output is lower in the new equilibrium. c) Following a rise in households' target wealth, both consumption and output are lower in the new equilibrium. +

. You are given the following data concerning Freedonia, a new republic. 1)  Consumption is 200 when income is zero and the marginal propensity to consume is 0.6 out of every dollar increase in income 2)  Investment function: I = 200 3)  AE ≡ C + I 4)  AE = Y A. Derive the savings function?  B. Suppose equation 2) is changed to I = 150. What is the new equilibrium level of income (Y)? By how much does the $50 decrease in planned investment change equilibrium income? What is the value of the tax multiplier?  C. Plot the savings function from a.  on a graph with equation 2).

Assuming that there is no government spending or trade, an economy’s GDP is the sum of domestic consumption C and investment I, i.e. Y = C+ I Assume that I is unaffected by GDP Assume the consumption function is C = c0 + c1Y In any equilibrium aggregate demand, AD must be equal to Y, GDP. Given this model, which FIVE of the following statements are correct?   Select one or more: A. If the economy above is a demand-driven economy, then the equilibrium solution for Y is given by Y = m(c0 + I), where m = 1/(1 - c1) is the multiplier. B. if c1 = 0.8 the multiplier is equal to 1/0.8= 1.25 C. if c1 = 0.75 the multiplier is equal to 4 D. assume c0 =100, I=50, c1=0.6. The equilibrium value of Y in a demand-driven economy is 300. E. Assume that Y is initially 400, I is initially 100, and the multiplier is 2.5. I increases by 10%. The multiplier implies that in equilibrium Y will increase by 25%. F. The higher is c1 the larger is the multiplier G. If consumers…

Assume that the Marginal Propensity to Consume (MPC) is 0.8. If the multiplier effect is taken into account, the reduction in government expenditure by $ 200 million will shift the overall demand process to the correct order below. A) right, $1,000 million B) left, $ 200 million C) left, $160 million D) left, $1,000 million E) right, $ 160 million