Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Chapter 4, Problem 5RQ
To determine
Effects of a temporary increase in government purchases on desired consumption and desired national saving.
Also, to explain theeffects of a lump-sum tax increase on national saving and controversial nature of lump-sum tax increase.
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Students have asked these similar questions
Investment can be increased both by reducing taxes on private saving and by reducing the government budget deficit.
True or False: It is possible to implement both of these policies at the same time because reducing taxes on private spending has the effect of
decreasing the government budget deficit.
True
False
What would you need to know in order to judge which of these two policies would be a more effective way to raise investment? Check all that apply.
The responsiveness of private saving to increases in investment
The response of private saving to changes in the government budget deficit
The elasticity of private saving with respect to the after-tax real interest rate
An economy has government purchases of 2000 (G=2,000). Desired national saving and desired
investment are given by
Sd = 200 + 500Or + (0.1Y) - (0.2G)
Id = 1000 - 4000r
When the full-employment level of output equals 5000,
A. What is the equilibrium real interest rate?
B. What is the equilibrium level of desired Investment?
c. What is the equilibrium level of consumption?
ADVANCED ANALYSIS Assume that the consumption schedule for a private open economy is such that consumption is:
C = 100 + 0.75Y
Assume further that planned investment Ig and net exports Xn are independent of the level of real GDP and constant at Ig = 60 and Xn = 10. Recall also that, in equilibrium, the real output produced (Y) is equal to aggregate expenditures:
Y = C + Ig + Xn
Instructions: Round your answers to the nearest whole number.a. What is the equilibrium level of income or real GDP for this economy?
Equilibrium GDP (Y) = $ .
b. What happens to equilibrium Y if Ig changes to 40?
Equilibrium GDP (Y) = $ .
What does this outcome reveal about the size of the spending multiplier?
Spending multiplier = .
Chapter 4 Solutions
Macroeconomics
Ch. 4 - Prob. 1RQCh. 4 - Prob. 2RQCh. 4 - Prob. 3RQCh. 4 - Prob. 4RQCh. 4 - Prob. 5RQCh. 4 - Prob. 6RQCh. 4 - Prob. 7RQCh. 4 - Prob. 8RQCh. 4 - Prob. 9RQCh. 4 - Prob. 10RQ
Ch. 4 - Prob. 1NPCh. 4 - Prob. 2NPCh. 4 - Prob. 3NPCh. 4 - Prob. 4NPCh. 4 - Prob. 5NPCh. 4 - Prob. 6NPCh. 4 - Prob. 7NPCh. 4 - Prob. 8NPCh. 4 - Prob. 9NPCh. 4 - Prob. 1APCh. 4 - Prob. 2APCh. 4 - Prob. 3APCh. 4 - Prob. 4APCh. 4 - Prob. 5APCh. 4 - Prob. 6APCh. 4 - Prob. 7APCh. 4 - Prob. 5WWMDCh. 4 - Prob. 6WWMD
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- In an economy, consumers spend 800 million regardless of their level of disposable income. In addition, they spend 75% of their yearly disposable income. * Investment is fixed at 250 million, Gvt expenditures are 120 million, net taxes are 100 million, exports are 170 million. Imports are 15% of the level of disposable income. Q, what is this economies equilibrium level of output Q how much would net export be when this economy is at equilibrium outputarrow_forwardCalculate the values for government purchases (G), private domestic saving (S), and private domestic investment (I) from the following information (all variables are in billions of dollars). 1. - . 5,200 YD = 4,400 C = 4,100 budget deficit trade surplus (NX) national income Y BD = 150 disposable income consumption TD = 110arrow_forwardConsider an economy described by the following equations:Y=C + I +GY=7,000G=4000T=2,000C=150+0.75(Y-T)I=1,000-50ra. In this economy, compute private saving, public saving and national saving.b. Calculate the equilibrium interest rate.c. Now suppose the G rises by 1,000. Compute private saving, public saving, and nationalsaving.d. Calculate the new equilibrium interest rate. Answer only part c and d in this question as I have attempted first two parts already.arrow_forward
- In an economy, desired consumption and investment are given by 35- Cd = 4,500 + 0.20Y- 5,000r N = 3,000 - 4,000r 30- where Y is output and r is the real interest rate. 25- Government purchases are G = 2,000. 20- The equation for desired national saving is given by: s4 = -6,500 + 0.80Y + 5,000r. 15- When Y = 10,000, the equilibrium rate of interest is calculated to 10- ber= 17%. When Y = 10,200, the equilibrium rate of interest is calculated to be r= 15%. 5- These equilibrium output and interest rate combinations are used to draw the initial IS curve labeled IS,- 9.9 10.0 10.1 10.2 10.3 Output, Y (thousands) Now the level of government purchases increases to 2,500. Determine the equation for the new saving function: Real interest rate, rarrow_forwardIn a closed economy, the values for GDP, consumption spending, investment spending, transfer payments, and taxes are as follows: Y = C = |= $15 trillion $10 trillion $4 trillion TR= $1 trillion T= $4 trillion Using the information above, what is the value of private saving and public saving? O A. Private saving equals $10 trillion and public saving equals $4 trillion. O B. Private saving equals $4 trillion and public saving equals $10 trillion. O C. Private saving equals $2 trillion and public saving equals $2 trillion.arrow_forwardAssume that total expenditure E comprises the sum of government consumption, G, household consumption, C, and investment, I. Assume a closed macroeconomic system, so that income equals expenditure Y=E. If we define household saving, SH, as SH=Y-T-C, where Y is national income and T is total taxation, which of the following will be true? a. SH=I+G b. SH=I-G-T c. SH=I+(G-T) d. SH=Iarrow_forward
- 1) Assume that Canadian government taxes away $0.15 of each dollar of new income, that 35% of the remaining $0.85 of disposable income is spent on imports, and that 2% of disposable income is saved. Enter your responses below rounded to 2 decimal places. a. The marginal propensity to withdraw is . b. From each new dollar of income $ is spent on domestic consumption items.c. The value of the Canadian spending multiplier is . 2) In each case below a particular fiscal policy affects an economy's AD curve via the spending multiplier. Calculate the spending multiplier and find the direction and size of the shift in the AD curve. Enter your responses for the spending multiplier rounded to 2 decimal places, and size of the shift of the AD curve rounded to 1 decimal place. Do not put minus signs in your answers. a. If government purchases increase by $3 billion in an economy with an MPW of 0.65 then the spending multiplier is and the AD curve finally shifts to the by $…arrow_forwardConsider the following data (in billion $) for a country in a particular year: (assume this country has Zero Transfer Payment Personal consumption expenditure (C) 200 Exports (x) 10 Government Purchases of goods and services (G) 120 Imports (m) 15 Gross Domestic Product (Y) 1800 Taxes 20 g. Dose the government has deficit, balance or surplus budget? h. What is the amount of investment financed by national saving? i. What is the amount of investment financed by borrowing from rest of the world? J. What is the meaning of transfer paymentarrow_forwarda. Suppose the government increases both taxes (7) and government purchases (G) by equal amounts. Assuming income (Y) is fixed by the factors of production, the change in national saving (AS) will be (MPC-1) * AT. (1-MPC) x AT. b. The larger is the MPC (the closer it is to 1), the will be the increase in the interest rate. will be the decline in investment, and thearrow_forward
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