Keynesia: Government expenditure 400 Exports 250 Autonomous imports 50 Autonomous consumption 150 Investment expenditure 300 Full- employment output 1900 Marginal propensity to consume 0.75 Marginal propensity to import 0.15 Tax rate 0.25 Required (I) Derive the IS equation (ii) Derive the savings function (iii) Calculate the equilibrium level of income using the aggregate expenditure approach
Keynesia: Government expenditure 400 Exports 250 Autonomous imports 50 Autonomous consumption 150 Investment expenditure 300 Full- employment output 1900 Marginal propensity to consume 0.75 Marginal propensity to import 0.15 Tax rate 0.25 Required (I) Derive the IS equation (ii) Derive the savings function (iii) Calculate the equilibrium level of income using the aggregate expenditure approach
Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?
Section: Chapter Questions
Problem 2DQ
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Question
You are provided with the following information about an imaginary economy called
Keynesia:
Government expenditure 400
Exports 250
Autonomous imports 50
Autonomous consumption 150
Investment expenditure 300
Full- employment output 1900
Marginal propensity to consume 0.75
Marginal propensity to import 0.15
Tax rate 0.25
Required
(I) Derive the IS equation
(ii) Derive the savings function
(iii) Calculate the equilibrium level of income using the aggregate expenditure approach.
(iv) What would the value of income be if the trade balance is zero?
(v) What would the value of income be if autonomous consumption increases by 50
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