Question

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 level of national income. Illustrate in a diagram with AE on the vertical and Y on the horizontal axis. [Hint: While solving, do not convert the fractions to decimals.] [6]

(b) Calculate the equilibrium levels of consumption spending and private saving (S) [Hint: Recall that C and S are functions of disposable income.]. Is the government running a surplus or deficit? Does the country have a trade surplus or deficit? [8]

(c) Now imagine that as a result of a world-wide financial crisis, both investment and exports decrease by 1 each. What is the new level of national income? Illustrate the effects in your diagram. What is effect on the government’s budget? [Hint: Using the multiplier simplifies the calculations.] [6]

(d) The government decides to use an increase in government spending to restore national income to its original level. By how much would it have to increase spending? What happens to the government’s budget balance? Explain why the government’s deficit does not increase by the full amount of the increase in spending. [6]

please use diagrams where appropriate

Answer #1

Income
(Yd)
Consumption
Expenditure
Saving
Investment
Expenditure
Government
Expenditure
Net Export
Expenditure
Aggregate
Expenditure
$8000
$11,000
$2,500
$5,000
$12,500
12,000
14,000
2,500
5,000
12,500
20,000
20,000
2,500
5,000
12,500
30,000
27,500
2,500
5,000
12,500
50,000
42,500
2,500
5,000
12,500
100,000
80,000
2,500
5,000
12,500
1.Calculate savings, autonomous consumption, MPC, MPS, break
even income, and the equilibrium level of income (Y = AE = C + I +
G + NX) in the above given information.
2. Draw a graph...

Income
(Yd)
Consumption
Expenditure
Saving
Investment
Expenditure
Government
Expenditure
Net Export
Expenditure
Aggregate
Expenditure
$8000
$11,000
$2,500
$5,000
$12,500
12,000
14,000
2,500
5,000
12,500
20,000
20,000
2,500
5,000
12,500
30,000
27,500
2,500
5,000
12,500
50,000
42,500
2,500
5,000
12,500
100,000
80,000
2,500
5,000
12,500
Calculate savings, MPC, MPS, break even income, and the
equilibrium level of income (Y = AE = C + I + G +NX) in the above
given information.
Draw a graph showing disposable income (Yd)...

This assignment is due by Monday, October 12 by
11:59pm.
Income
(Yd)
Consumption
Expenditure
(C)
Saving
(S)
Investment
Expenditure
(I)
Government
Expenditure
(G)
Net Export
Expenditure
(NX)
Aggregate
Expenditure
(AE)
$8000
$11,000
$2,500
$5,000
$12,500
12,000
14,000
2,500
5,000
12,500
20,000
20,000
2,500
5,000
12,500
30,000
27,500
2,500
5,000
12,500
50,000
42,500
2,500
5,000
12,500
100,000
80,000
2,500
5,000
12,500
From the above given information calculate savings, MPC, MPS,
Multiplier, and the equilibrium level of income (Y = AE...

Let AE = C +I +G+NX where AE is the aggregate expenditure, C is
the consumption function, I is investment, G is government
expenditure and NX is the net export.
Given C = 100+0.65Y where Y is the national income and I = 100,
G = 100+0.10Y, NX = 0
(a) Graph the consumption function with Y on the horizontal axis
and C on the vertical axis.
(b) Graph the aggregate expenditure function with Y on the
horizontal axis and...

An open economy is described by the following system of
macroeconomic equations, in which all
macroeconomic aggregates are measured in billions of Namibian
dollars, N$.
Y = C + I + G + X – M
C = 160 + 0.6Yd
T = 150 + 0.25Y
I = 150
G = 150
E = 300
M = 50 + 0.1Y, Yf = 1500
Where: Y is domestic income
Yd is private disposable income
C is aggregate consumption spending
T is...

3. Consider an economy characterized by the following
equations
AE = 10 + 0.75Y - 0.5P
AS: Y = 10 + P
where Y is national income, AE is desired aggregate expenditure,
P is the price level, AS is the aggregate supply. National income
is in billions of dollars.
a) What is the equation for the aggregate demand (AD)? Solve for
equilibrium P and Y. Illustrate the equilibrium in a diagram with P
on the vertical axis and Y on...

For each of the following shocks, identify what
component(s) of U.S. planned aggregate expenditure are directly
affected and in which direction.
a. Income tax rates increase:
Which component of planned aggregate expenditure is
affected?
Consumption
Investment
Government spending
Net exports
None of these are affected
What happens to planned aggregate expenditure?
Increases
Decreases
Unaffected
b. China experiences an economic boom:
Which component of planned aggregate expenditure is
affected?
Consumption
Investment
Government spending
Net exports
None of these are affected
What...

(a) Assume that Y = 5,000, DI = 4,100, BD = 200, C =3,800 and NX
= -100, where Y is GDP, DI is disposable income, BD is government’s
budget deficit, C is consumption spending and NX is next exports.
Find the values for saving (S), investment (I) and government
spending (G) in this economy.
(b) If a country has a trade deficit, its government must
necessarily have a budget deficit. True or false? Explain.

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...

C = 50 + 0.80Yd; C = consumption function; Yd = disposable
income (Y-T)
T = 30; T = Tax revenue I = 100;
I = Investment G = 150;
G = Government expenditure
Yf = Full Employment RGDP (Potential RGDP) = 1600
14. Using the value of MPC = 0.75, and knowing the difference
between the values of expenditure multiplier and the tax
multiplier, with reduction of taxes by $300 billion (other things
staying the same), estimate increased level...

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