Question

In the Keynesian cross model, assume that the consumption function is given by C=120+0.8(Y−T).

Planned investment is 200; government purchases and taxes are both 400. Y, C, I G&T are all in billions.

1. Graph planned expenditure as a function of income.

2. What is equilibrium income?

3. If government purchases increase to 420, what is the new
equilibrium income? What is the multiplier for government
purchases?

4. What level of government purchases is needed to achieve an
income of 2,400? (Taxes remain at 400.)

5. What level of taxes is needed to achieve an income of 2,400?
(Government purchases remain at 400.)

6. If you were the economic adviser to the president and the
government’s goal is to stimulate the economy by increasing GDP by
$2,400 billion, which one will you recommend to achieved this GDP
target? Government spending or tax cut? Why?

Answer #1

1. In the Keynesian cross, assume that the consumption function
is given by: C=$85+0.7(Y−T). Planned investment is $200, government
purchases and taxes are both $50.
a. Graph planned expenditure as a fraction of income.
b. What is the equilibrium level of income?
c. If government purchases increase to $65, what is the new
equilibrium income?
d. What level of government purchases is needed to achieve an
income of 1160? Assume taxes remain at $50.
e. What level of taxes is...

1. In the Keynesian cross, assume that the consumption function
is given by: C=$85+0.7(Y−T). Planned investment is $200, government
purchases and taxes are both $50.
a. Graph planned expenditure as a fraction of income.
b. What is the equilibrium level of income?
c. If government purchases increase to $65, what is the new
equilibrium income?
d. What level of government purchases is needed to achieve an
income of 1160? Assume taxes remain at $50.
e. What level of taxes is...

1) In the Keynesian cross, assume that the consumption function
is given by
C=200+0.75 (Y-T)
Planned investment is 100; government purchases and taxes are
both 100.
Graph planned expenditure as a function of income.
What is the equilibrium level of income?
If government purchases increase to 125 (goes up by 25), what
is the new equilibrium income?

Suppose you are developing a Keynesian Cross Model with the
following information:
C = 220+(0.75(Y-T), Planned Investment I = 500, G = T= 500
a.
Please find out the equilibrium income.
b.
Please find out what is the consumption at the equilibrium
level.
c.
Please graph the Keynesian Model to locate the equilibrium
between the income and
expenditure.
d.
What level of government purchase is required to achieve an
income level of $ 3700?
e.
What is the mpc for...

In the Keynesian Cross, assume that the consumption function is
given by: C = 200 + 0.8 (Y-T).
Assume that: I = I ̅= 100, G = G̅ =100, T = T̅ =100.
a) Use graphical analysis to demonstrate the determination of
equilibrium income.
b) What is the equilibrium level of income?
c) If government spending increase to 125, what is the new
equilibrium income?
d) Now instead of assuming T = T̅ , assume that T = T̅ +...

In a closed economy, the consumption function is:
c = 1.15 + 0.75(y - t) billions of 1992 dollars.
The tax function is:
t = 0.1y + 0.1 billions of 1992 dollars.
Planned investment is $1 billion and planned government
expenditures
are $1.5 billion. Calculate:
The equilibrium level of real GDP.
2. Consumer expenditure
3. Saving
4. The investment multiplier
5. The government budget deficit
6. The leakages from and injections into the circular flow of
income and
expenditure. Do...

Consider a closed economy to which the Keynesian-cross analysis
applies. Consumption is given by the equation C = 200 + MPC(Y – T).
Planned investment (I) is 300, government spending (G) is 300 and
taxes (T) is 300. Assume MPC is equal to 2/3.
(a) If Y is 1,500, what is planned spending? What is inventory
accumulation or decumulation? Is equilibrium Y higher or lower than
1,500?
(b) What is equilibrium Y?
(1 mark)
(c) What are equilibrium consumption, private...

Consider the following Keynesian-cross model of an economy:
Consider the following Keynesian-cross model of an economy:
C = 170 + 0.6 ( Y − T )
I = 250
G = 300
T = 200
By how much would government purchases have to increase in order
to increase the equilibrium level of income by 50?
By how much would government purchases have to increase in order
to increase the equilibrium level of income by 50?

Suppose that the economy is characterized by the consumption
function C=151+ 0.1(Y-T) with exogenous investment I = 10,
government purchases G = 20, and taxes T = 10. Which of the
following is true?
the multiplier is 0.9
the equilibrium consumption/output ratio is C/Y = 0.9
the autonomous spending is 170.
equilibrium output is Y = 200
the government budget is balanced

In a closed economy, given the following:
The consumption function C = 0.8(1 – 0.25) Y +
12
The average tax rate t = 25%
The level of private investment I = 26
The level of government spending G = 14
Where Y is the national income.
Calculate the equilibrium level of income and output in the
economy.
Calculate the expenditure multiplier and show the effect
of
an increase in government spending and
an increase in private investment.

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