ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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- A. Suppose you are given the following fixed-price Keynesian model: C=280 + 0.9Y. I-200 G=100 X3D200 M= 100 + 0.1Y. T= 100 a. Find the aggregate expenditure function. b. Find the equilibrium level of real GDP. C. What is the spending multiolier in this model? Tax multiplier? d. Show that leakages injections at equilibrium. e. If taxes increase by $100, what is the new equilibrium level of GDP? E. Show your answers to b) and e) graphically.arrow_forwardSuppose the consumption function is C=$800 billion + 0.8 Y and the government wants to stimulate the economy. By how much will aggregate demand at current prices shift initially (before multiplier effects) with Instructions: Enter your responses as a whole number. a. a $100 billion increase in government purchases? $ billion b. a $100 billion tax cut? billion c. a $100 billion increase in income transfers? billion What will the cumulative AD shift (after multiplier effects) be for d. the increased government spending? billion e. the tax cut? billion f. the increased transfers? billionarrow_forwardYAS 1548 + 19P - 12Poil YAD = 412 – 33P+ 26G %3D Suppose initially, the Poil = $86 per barrel and government spending is equal to $780. Part (a): Calculate equilibrium GDP and the price level. Part (b): Determine the magnitude of the simple multiplier if oil prices exogenously rise by $1. Part (c): Determine the magnitude of the simple multiplier if government spending exogenously increases by $1.arrow_forward
- Thanks for helparrow_forward?arrow_forwardYAS = 742 + 15 P- 28Poil YAD = 478 - 45P + 18G Suppose initially, the Poil = $93 per barrel and government spending is equal to $630. %3D Part (a): Calculate equilibrium GDP and the price level. Part (b): Determine the magnitude of the multiplier if oil prices exogenously rise by $1. Part (c): Using 2 to 3 sentences, provide a theoretical explanation for why the multiplier you calculated in part (b) is smaller (in absolute value) than the simple multiplier. Hint: you should be mentioning how the price level impacts AE and AD variables. Part (d): Determine the magnitude of the multiplier if government spending exogenously increases by $1. Part (e): Using 2 to 3 sentences, provide a theoretical explanation for why the multiplier you calculated in part (d) is smaller than the simple multiplier. Hint: you should be mentioning how the price level impacts AE and AD variables.arrow_forward
- A decrease in government purchases of $6 billion leads to an initial $4.5 billion decrease in withdrawals. a. In this case MPW is, MPC is, and the spending multiplier in this economy is Enter your responses for marginal propensities and multiplier values rounded to 2 decimal places. b. With this change in government purchases the AD curve shifts to the by $billion. Enter your response for the size of the curve shift rounded to 1 decimal place. Do not put a minus sign in your answer. c. As a result of this shift the equilibrium price level will (Click to select) vv and equilibrium real output will C A decrease in government purchases of $6 billion leads to an initial $4.5 billion decrease in withdrawals. MPC is a. In this case MPW is , and the spending multiplier in this economy is propensities and multiplier values rounded to 2 decimal places. Enter your responses for marginal b. With this change in government purchases the AD curve shifts to the (Click to select) by $ of the curve…arrow_forwardAggregate Expenditures and Multipliers Assignment a. Using the aggregate expenditure function above, what is the current level of real GDP? b. Using the aggregate expenditure function above, what would be the level of real GDP if the aggregate expenditure function shifted up by $0.2T? c. If Investment expenditures increase by $300B and MPC is equal to 0.90, what will be the increase in real GDP? d. If Government expenditures increase by $800B and MPS is equal to 0.05, what will be the increase in real GDP?arrow_forward2. For simplicity, we normally treat aggregate tax payments (T) as determined by politics or other factors unrelated to output. However, suppose that aggregate tax payments are proportional to income. That is, T=t·Y, where tis the marginal tax rate and is between o and 1. a. How, if at all, would this change in our assumptions affect the Keynesian cross diagram? b. Would this change increase, decrease, or have no impact on the multiplier effect, or is it not possible to tell? (That is, how would the effect of a given vertical shift of the planned expenditure line compare with what it was before?)arrow_forward
- Suppose the consumption function is $800 billion +0.8y and the government wants to stimulate the economy. By how much will aggregate demand at current prices shift initially (before multiplier effects) with: a. A $50 billion increase in government purchases b. A $50 billion tax cut c. A $50 increase from income transfers what will the cumulative ad shift be for: d. The increased government spending e. The tat cut f. The increased transfersarrow_forwardIs the relationship between changes in spending and changes in real GDP in the multiplier effect a direction (positive) relationship or is it an inverse (negative) relation- ship?arrow_forwardAt an intial point on the aggregate demand curve, the price level is 100, the real GDP is $18 trillion. After the price level rises to 110, however there is an upward movement along the aggregate demand curve, and real GDP declines to $14 trillion. If total planned spending declines by $200 billion in response to the increase in the price level, what is the MPC in this economy?arrow_forward
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