Consider a closed economy to which the Keynesian-cross analysis applies. Consumption is given by the equation C = 100 + 0.6*(Y – T). Planned investment is 300, as are government spending and taxes. a. If current output is 1,400, what is planned consumption? What is planned expenditure? b. What is inventory accumulation (i.e., unexpected increase in inventory) or decumulation (i.e., unexpected decrease in inventory)? Should equilibrium output be higher or lower than 1,400? C. What is equilibrium output? What is equilibrium consumption?

If consumption is defined as C = 2,400 + 0.9Y, then the value of the marginal propensity to consume is 0.9. True False

If the consumption function is C = 80 + 0.6Y, then the marginal propensity to consume equals:     0.6.     0.4.     0.5.     -0.4.

The private consumption of Macroland is given by C=500+0.75Y and the private investment function is given by I=400−1000r, where r is the interest rate and Y is the GDP. The planned aggregate expenditure can therefore be written as PE=C+I=900+0.75Y−1000r. The equilibrium in the goods and services market happens when the planned expenditure is equal to the actual expenditure, or PE=Y Find the equilibrium GDP by solving the system of equations PE=900+0.75Y-1000r PE= Y for Y and PE. Note your solutions will depend on r! 1. Plot your solution for Y in a diagram measuring Y on the horizontal axis and r on the vertical axis. This curve is called the IS curve.

The marginal propensity to consume is Select one: a. never bigger than 1 b. equal to disposable income divided by consumption c. always equal to the marginal propensity to save d. normally assumed to increase as disposable income increases e. all of the above

I. Given: C = 1080 + .6Y T= 100 + .25Y %3D TR = 0 1) Find the equation for YDISP 2) Find levels of autonomous consumption and marginal propensities to consume and save. 3) Find C and S as functions of YDISP.

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.

Problem 1 Suppose the system of aggregate expenditures can be described by the following relationships and parameter values. C(Y – T) = 1200 + 0.8(Y – T) I(r) = 100 – 3r G = 200;T = 200; r = 5; Ex = Im = 0 1. In the consumption function, 1200 represents the portion of consumption that is not dependent on disposable income. Suppose something causes households to become concerned about their economic futures and this autonomous consumption falls to 1100. Find the new equilibrium level of Y (output/income).

Suppose that the marginal propensity to save is ds = 0.25 (in billions of dollars) dy and that consumption is $5.05 billion when disposable income is $0. Find the national consumption function. C(y) =

Suppose the marginal propensity to consume equals 0.8 (i.e., c1 = 0.8). Given this information, which of the following events will cause the largest increase in output? Select one or more:   a. Public spending, G, increases by 200   b. real GDP was larger than nominal GDP from 2002 to 2008 Public spending, G, increases by 150   c. Investment, I, increases by 150   d. Taxes, T, decrease by 200