Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 27, Problem 2TY
To determine
The equilibrium of the given economy where the taxes are varying with income.
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Given the information below, answer the questions that follow.
C = $40 + 0.75Y I = $30 G = $40 X – M = $10
a) What is the equilibrium GDP? Explain why $550 is not the equilibrium.
b) What is the marginal propensity to consume (MPC) in this question? (Explain)
c) What is the multiplier in this question and explain the significance of the multiplier?
Given the information below, answer the questions that follow.
C = $40 + 0.8Y I = $30 G = $40 X – M = -$10
a) What is the equilibrium GDP? Explain why $550 is not the equilibrium.
b) What is the marginal propensity to consume (MPC) in this question? (Explain)
c) What is the multiplier in this question and explain the significance of the multiplier? (Show all work)
d) Assuming that the full employment level of output is $600, what kind of gap exists and how large is it? Explain
e) If transfer payments increased by $10 and the price level did not change, what would the new equilibrium be? (Show all work)
f) How would your answer to part (e) change if the price level did change?
Using the table below to answer the following questions. Assume all values represent trillions of dollars.
Construct a graph of the Aggregate planned expenditure
What is the equilibrium expenditure?
Explain what happens at a real GDP of $4 trillion dollars. (Note the aggregate
expenditures and the effects on inventories)
What are your total autonomous expenditures?
What is the marginal propensity to consume?
Ignoring imports and income taxes, what is the multiplier?
If investment increases by $1.5 trillion, what is the change in real GDP?
Chapter 27 Solutions
Economics: Principles & Policy
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