Question

Consider a goods market in the following situation. (1) Aggregate demand: Z=C+I+G (2) Aggregate supply: Y=Z...

Consider a goods market in the following situation.
(1) Aggregate demand: Z=C+I+G
(2) Aggregate supply: Y=Z
(3) C(Consumption)=c0+c1(Y-T),
(4) G(government spending)= g0-g1Y, T(government tax revenue)= t0+t1Y (all the
coefficients are non-negative),
(5) (Exogenously given) I=investment
(a) Give interpretations on the newly introduced functions of the government spending
and revenue. Do they seem realistic?
(b) Represent
Y∗
as a function of exogenous variables and parameters.
(c) Assess the effects of changes in g1 on
Y∗
.
(d) Assess the effects of changes in t1 on
Y∗
. What is the meaning of t1?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
An economy is described by the following equations: Y = C + I + G C...
An economy is described by the following equations: Y = C + I + G C = c0+ c1.YD YD= Y – T T = t1.Y – t0 And 0 < c1< 1, 0 < t1< 1, c0> 0, t0> 0, G and I are autonomous and higher than zero. Is the following statement true? “An increase in the marginal income tax rate t1leads to a reduction of the primary deficit of the government (=G – T)” Does the tax...
Consider the following behavioral equations: (18 marks) C=c0 +c1YD T=t0 +t1 Y YD = Y –...
Consider the following behavioral equations: C=c0 +c1YD T=t0 +t1 Y YD = Y – T G and I are both constant. Assume that t1 is between 0 and 1. (1) Solve for equilibrium output and equilibrium taxes. (2) What is the multiplier? Does the economy respond more to changes in autonomous spending when t1 is 0 or when t1 is positive? Explain. (3) Why is the fiscal policy in this case called an automatic stabilizer? Now suppose that the government...
1. Suppose the United States economy is represented by the following equations: Z= C + I...
1. Suppose the United States economy is represented by the following equations: Z= C + I + G , C = 500 + 0.5Yd, Yd = Y − T T = 600, I = 300, G = 2000, Where, Z is demand for goods and services, Yd is disposable income, T is taxes, I is investment and G is government spending. Y is income/production. (a) Assume that the economy is in equilibrium. What does it mean in terms of the...
Given a closed economy in the long run (classical model): Y=F(K,L) Y=C+I+G C=c(Y-T) I=I(r) G and...
Given a closed economy in the long run (classical model): Y=F(K,L) Y=C+I+G C=c(Y-T) I=I(r) G and T set by Government policy. For the following changes in the economy, show the impact of the change on the loanable fund market. Use a fully labeled graph. Also state the impact of the change on the following variables: Y, C, G, S, I and r. 1) A decrease in Government Spending. 2) A decrease in Taxes. 3) An increase in Investment demand.
Y = 5,000 C = 1,000 + 0.3(Y - T) I = 1,500 - 50r T...
Y = 5,000 C = 1,000 + 0.3(Y - T) I = 1,500 - 50r T = 1,000 G = 1,500 where Y is total income (GDP), G is government spending, C is aggregate consumption, I is the investment function, T is government taxes and r is the real interest rates in percent. b. Jupiter Island is a small open economy (with perfect capital mobility) in the world economy described above, though not involved in the technological innovation. Use the...
3. The IS-LM Model Consider an economy characterized by the following equations for consumption (C), investment...
3. The IS-LM Model Consider an economy characterized by the following equations for consumption (C), investment (I), government spending (G), taxes (T), aggregate demand (Z), output (Y), and the interest rate (i): C = 54 + 0.3*(Y – T) I = 16 + 0.1*Y – 300*i G = 35 T = 30 Z = C + I + G i = ? Suppose the central bank has set the interest rate equal to 2% (this is, ? = 0.02). a)...
3. The IS-LM Model Consider an economy characterized by the following equations for consumption (C), investment...
3. The IS-LM Model Consider an economy characterized by the following equations for consumption (C), investment (I), government spending (G), taxes (T), aggregate demand (Z), output (Y), and the interest rate (i): C = 54 + 0.3*(Y – T) I = 16 + 0.1*Y – 300*i G = 35 T = 30 Z = C + I + G i = ? Suppose the central bank has set the interest rate equal to 2% (this is, ? = 0.02). a)...
The US economy is represented by the following equations: Z=C+I+G, C=300+.5YD, YD =Y T T =400,...
The US economy is represented by the following equations: Z=C+I+G, C=300+.5YD, YD =Y T T =400, I =250, G=1000 Given the above variables, calculate the equilibrium level of output. Now assume that consumer confidence increases causing a rise in autonomous consumption (c0) from 300 to 500. What is the new equilibrium level of output? How much does income change as a result of this event? What is the multiplier for this economy?
Suppose the following aggregate expenditure model describes the US economy: C = 1 + (8/9)Yd T...
Suppose the following aggregate expenditure model describes the US economy: C = 1 + (8/9)Yd T = (1/4)Y I = 2 G = 4 X = 3 IM = (1/3)Y where C is consumption, Yd is disposable income, T is taxes, Y is national income, I is investment, G is government spending, X is exports, and IM is imports, all in trillions $US. (a) Derive a numerical expression for aggregate expenditure (AE) as a function of Y. Calculate the equilibrium...
1.     Suppose the United States economy is represented by the following equations: Z = C + I...
1.     Suppose the United States economy is represented by the following equations: Z = C + I + G            C = 100 + .5YD                     T = 200                     I = 30 YD= Y - T                G = 100 a)     Which variables are endogenous and which are exogenous? b)     Calculate equilibrium levels of output, consumption and disposable income c)     What is the multiplier for this economy d)     What is the effect of increasing G by $100 on Y and the deficit 2)     Suppose that the wage and price setting relations are...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT