MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
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Question
Chapter 9, Problem 5TY
To determine
To calculate: The equilibrium level of
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For this problem set, we're going to keep things simple. Be sure to watch the lecture before completing this. Please
use the following information and the following model from your book (and the lecture) to calculate Y (aggregate
incomes in an economy). BE SURE TO SHOW YOUR WORK (It's the reason I made this a problem set instead of a
quiz)
Y=C+1+G
C= Co + C;(Y-t)
Total spending in a small society:
Household spending on medicine: $4,000
Household spending on food: $1,000
• Household spending on recreation and entertainment: 20% of income
• Household spending on clothing: 15% of income
• Household spending on art: 40% of income
• Business investment on product lines: $10,000
• Business investment on equipment: $1,500
• Government spending on national defense: $3,600
• Government spending on roads: $2,000
Q1: There are two equations for macroeconomic equilibrium in an economy. State them.
Show (mathematically) that Savings equals Investment when expenditure equals income.
What type of economy would you have when exports equal imports? What happens to the
savings-investment relationship if exports are not equal to imports? [This can be greater
than or less than]. [Hint: See video lecture on Open Economy Macroeconomics]. Note: Ensure
to write out full meanings when you use abbreviations or short forms. This is key to getting
full marks.
Assume the following model of the expenditure sector:
S=C+I+G+Nx
TR=100
C=420+(4/5)YD
I=160
G=180
Nx=-40
YD=Y+TR-TA
TA=(1/6)Y
If the government would like to increase the equilibrium level of output (Y) to the full employment level Y*=2,700, by how much should government purchases (G) be changed?
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