Problem 3. Analyze the general equilibrium effects of an increase in taxes. Illustrate your answer with a graph. Organize your answer by discussing (1) Does the change shift the IS curve and/or the LM curve? (2) How does the change affect the equilibrium interest rate and output? (3) Describe the effect of the change with your own words by focusing on the changes in the composition of GDP. Does the change shift the IS curve and/or the LM curve? How does the change affect the equilibrium interest rate and output? Describe the effect of the change with your own words by focusing on the changes in the composition of GDP.

Problem 3. Analyze the general equilibrium effects of an increase in taxes. Illustrate your answer with a graph. Organize your answer by discussing (1) Does the change shift the IS curve and/or the LM curve? (2) How does the change affect the equilibrium interest rate and output? (3) Describe the effect of the change with your own words by focusing on the changes in the composition of GDP. Does the change shift the IS curve and/or the LM curve? How does the change affect the equilibrium interest rate and output? Describe the effect of the change with your own words by focusing on the changes in the composition of GDP.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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- The following data characterises the macroeconomic conditions of a hypothetical еconomy: С - 50 + 0.8 Ya I = 100 G = T=75 where C, I, and Y,are consumption, investment and disposable income respectively. Calculate equilibrium income of the economy. What is the value of multiplier?
37. If the equilibrium level of GDP is $30,000, using the equations for C, I, G, and NX shown above, find the value of the marginal propensity to consume. C=4,000+ 0.5Y I= 1,500 G=2,250 NX=-150
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13. Assuming that an economy’s aggregate demand is given by its domestic consumption C and investment I, AD = C + I = c0 + c1Y + I. In the economy’s goods market equilibrium, this equals its output: AD = Y. Solving for Y this yields: Y = [1/(1 -c1 )] (c0+ I) Given this equation, which of the following statements is correct? 1. The multiplier is given by 1 – c1. 2. The boost in the economy’s output is the same, regardless of whether the aggregate demand shock comes from an increase in investment I or in autonomous consumption c0. 3. The larger the marginal propensity to consume (c1), the smaller the multiplier. 4. If c1 = 1/3, then a £1 million increase in investment would result in a £2 million increase in output. 14. In the US and the UK, loans are…
Stiller 1. Suppose an economy is represented by the following equations. Consumption function C = 100 + 0.8Yd Planned investment I = 38 Government spending G = 75 Exports EX = 25 Imports IM= 0.05Yd Autonomous Taxes T = 40 Planned aggregate expenditure AE = C + I + G + (EX - IM) a. By using the above information calculate the equilibrium level of income for this economy, b. Calculate the value of expenditure multiplier. c. Suppose that government spending is increased by 5, what will happen to the equilibrium income level?
4. What do we mean when we talk about the export base of a region? How does an increase in the export base affect total employment? How does this relate to the multiplier? What factors limit the size of the multiplier within cities?
Fill in the missing cells. Explain adjustment to equilibrium.
If consumption is C=100+0.75Yd Taxes is T=50+0.5Y Export is X=200 Import is M=50+0.25Y Government spending is G=150 Investment is I=200 .Use the multiplier applicable to export,to explain how a100–billion decline in demand for export could affect the economy’s: (i) GDP/income Expert Answer Step 1 A multiplier is an important factor of an economy that can lead to change in many economic variables when increase or decrease. Step 2 An export multiplier is a multiplier that is applicable to export. The effect of a decline in demand by 100 billion on GDP/income will be computed by the export multiplier. Thus, The export multiplier shows that the GDP/income will be decreased by 1.33 billion with the decline in the 100-billion decline in the demand. please show how you get M=0.5
Refer to the table on the next page in answering the questions that follow:a. If full employment in this economy is 130 million, will there be an inflationary expenditure gap or a recessionary expenditure gap? What will be the consequence of this gap? By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the inflationary expenditure gap or the recessionary expenditure gap? Explain. What is the multiplier in this example?b. Will there be an inflationary expenditure gap or a recessionary expenditure gap if the full-employment level of output is $500 billion? Explain the consequences. By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the gap? What is the multiplier in this example? c. Assuming that investment, net exports, and government expenditures do not change with changes in real GDP, what are the sizes of the MPC, the MPS, and the multiplier?
if the government cuts taxes in period 1 and cuts government spending in period 2 - this will increase the disposable income of the consumers - won't this increase consumption for consumers having an ambiguous effect on private saving. this is because if consumption is a normal good - increasing the income - positive income effect. My question is for some reason if consumer' disposable income increases - doesnn't this mean consumption must increase - whether it increases more/ enough to neutralise the tax cut effect is debatable and situation dependent - but surely there is an ambiguous effect on private saving for this reason
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Suppose an economy had aggregate demand components with the following relationships: Consumption spending, C=140+.60*(DY) Investment spending,I=25+.15*Y Government Spending, G= 0 Net Export Spending,X=0 Tax collections, Tx=0 a. What is the equilibrium income for this economy? b. If the government decided to increase G spending by 6, what would be the new equilibrium income for this economy? c. If instead the government decided to reduce Tx (taxes) by 10, what would be the new equilibrium income for the economy? d. If instead the government decided to increase G spending and Increase Tx (taxes) by 20, what would be the new equilibrium for this economy?