Consider a simple model, such as the one developed in this chapter. The table to the right shows the levels of desired consumption, desired investment, and desired aggregate expenditures for various levels of actual national income.

Consider a simple model, such as the one developed in this chapter. The table to the right shows the levels of desired consumption, desired investment, and desired aggregate expenditures for various levels of actual national income.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A simple closed economy with government sector is given by the following equations: C = 10 + 0.75 Y I = 20 G = 40 where C is aggregate consumption, Y is national income, G is government expenditure on goods and services, and I is investment expenditure. Note that there are no taxes assumed in parts (a) to (c). (a) What is the equilibrium level of national income? Show all your workings. (b) What is the value of aggregate consumption and the value of aggregate savings at the equilibrium level of the national income? Show all your workings. (c) What would be the new level of national income if government expenditure increased by 10? Show all your workings and explain the mechanisms through which the economy reaches a new equilibrium. (d) If a tax rate of 1/3 of national income were introduced, what would be the new equilibrium level of national income in the economy outlined above. Show all your workings and explain the mechanisms through which the economy reaches the new equilibrium.
The simple aggregate expenditures model discussed in this chapter concluded The simple aggregate expenditures model discussed in this chapter concluded that one form of spending was just as good as any other; increases in all types of spending lead to equal increases in income. Is there any reason to suspect that private investment might be better for the economy than government spending? The simple aggregate expenditures model discussed in this chapter concluded
Refer to Table 1. The equation for the aggregate consumption function is C = 200 + 0.3Y. C = -200 + 0.2Y. C = 200 + 0.8Y. C = 200 + 0.75Y.
Refer to the below table. Which statement is true if aggregate income (output) is 1000? Aggregate Output 200 All Figures in Billions of Dollars Aggregate Consumption 300 Planned Investment 100 400 450 100 600 600 100 800 750 100 1,000 900 100 There is an unplanned increase in inventories and output will subsequently decrease. There is an unplanned increase in inventories and output will subsequently increase. There is an planned decrease in inventories and output will subsequently decrease. There is neither an unplanned decrease nor an increase. Output will remain the same. There is an planned increase in inventories and output will subsequently increase.
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Now that the government's national debt has been growing for several years, investors have become worried that the government might default on its debt-that is, might refuse to pay back the investors. As a result, the investors are now willing to lend to the government only if they receive an interest rate of 10%. If the government runs a budget defict of $10 billion in 2019, the national debt will increase by 5 True or False: At the end of 2019, the government of Debtenburg will exceed the legal limit on how much it can borrow. True O False billion.
In the aggregate expenditures model, all are true except: a)the price level is shown b)the equilibrium level of GDP can be determined c)the relationship between spending and production is presented d)the actual GDP can be compared to potential GDP
In the ruins of an ancient Mesopotamian civilization, Dr. Jones has found what appears to be a partially intact government records about economic activity in the kingdom. From the recovered tablets, he learned that GDP was 12 billion, private consumption was 9.5 billion,transfers to poor were 1.5 billion, private investments were at 2.1 billion, government purchased goods and services in the amount of 1.7 billion and collect 3 million in taxes. Assuming the data are correct, what can you say about(a) net exports, (b) private savings, and (c) public savings. What do the numbers in (a), (b), and (c) mean?
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