Consider the following Keynesian national-income model, Y=C+ Io + Go C = a + b(Y-To) where a and b are parameters with the following range; a>0 and 0
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- Suppose Congress decides to reduce the budget deficit by cutting government spending. a. Use the Keynesian-cross model to illustrate graphically the impact of a reduction ingovernment purchases on the equilibrium level of income. Be sure to label: i) the axes;ii) the curves; iii) the initial equilibrium values; iv) the direction the curve shifts; andv) the terminal equilibrium values. b. Explain what happens to equilibrium income as a result of the cut in governmentspending.51. What is the essence of "Keynesianism"? That is, what is/are the indispensable1 Fully develop (mathematically and graphically) the Keynesian Cross (Expenditures=Output) model. Be explicit regarding what variables are endogenous and what variables are exogenous.
- Consider a one-period economy which experiences the destruction of some of the nation’s capital stock (say through a hurricane is de- stroyed). How should this effect equilibrium, consumption, output and labor supply? Now, let’s say the government tries to offset some of the declines in capital on output and hours worked by increasing govern- ment spending. What is the likely outcome of this policy intervention in terms of consumption? In our model, the affects of changes on wages are ambiguous because the income and substitution effects move in opposite directions. How do (many) macroeconomists deal with this ambiguity in terms of study- ing business cycle? How do economists resolve this ambiguity when studying long term economic development? Consider an economy with a straight line PPF. Show how an increase in government spending paid for by an increase in lump sum labor taxes affects outcomes. Do the same for an increase in government spending financed by a proportional income…Q2. Consider the simple Keynesian model of income Determination Ct = Bo + B₁Yt + Mt 010 . In the “complete Keynesian model”, the investment functions was I = I0 - f(i). An analyst now proposes the following investment function: I = I0 - f(i) + qY, where “q” is a parameter and Y is national income = GDP. Provide two different arguments, i.e. explanations as to why this investment function makes sense. The focus is on the new term, qY (q times Y), in the function.Let’s see whether the Keynesian conclusions hold under two differentscenarios.We still assume that (1) Prices were sticky, (2) Money market always clear. Now, instead of assuming that output isdemand determined we use the assumption that OUTPUT IS ALWAYS SUPPLY DETERMINED (in other words, if Y d isdifferent from Y s, then Y = Y s.)1. Under this new set up, starting from a classical equilibrium, what is the effect on the interest rate and on output ofa DECREASE in money supply?1. A Keynesian macroeconomic model with a single-time-period lag on the consumption function, as described below, is initially in equilibrium and the level of I, is given at 500. Y, = C, + I, C, = 750 + 0.5Y I, is then increased to 650. Use difference equation analysis to find the value of Y, in the fourth time period after this disturbance to the system. Will it then be within 1% of its new equilibrium level? ThConsider a keynesian macromodel Y=(C0+G+I) / (1-c) where C0 is autonomus consumption, G is government consumption expenditure, I is investment expenditure, c is the marginal propensity to consume. Assume constant marginal productivity of labor. If we extend the model to that investment is an inverse function of the rate of interest, what will happen to the employment if interest rates are cut? a. Indeterminate b. Neither c. Higher employment d. Lower employement.Suppose policymakers decide to reduce the budget deficit by cutting government spending. Use the Keynesian Cross model to illustrate graphically the impact of a reduction in government purchases on the equilibrium level of income. Be sure to label: (a) the axes, (b) the curves, (c) the initial equilibrium values, (d) the direction the curve shifts, and (e) the final equilibrium values. Explain in words what happens to equilibrium income as a result of the cut in government spending. (100 words max)Assume that the economy, as represented by the simple Keynesian model, is in equilibrium with income equal to $6 million and consumption spending equal to $5 million. Which of these is correct? O Investment is $1 million. There is no saving in this economy. The economy will go into disequilibrium because consumption is not equal to income. The information provided is insufficient to determine the level of investment spending.According to the Keynesian macroeconomic model, the level of intended investment... (check all that apply) is autonomous is determined by the inflation rate depends on the level of optimism or pessimism among investors is determined by savings and the interest rate is a function of the level of output and income is a function of the unemployment rateSEE MORE QUESTIONS