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...

Suppose an economy is represented by the following
equations.
Consumption function C = 300 + 0.8Yd
Planned investment I = 400
Government spending G = 500
Exports EX = 200
Imports IM = 0.1Yd
Autonomous Taxes T = 500
Marginal Tax Rate t=0.25
Planned aggregate expenditure AE = C + I + G + (EX - IM)
By using the above information calculate the equilibrium level of
income for this economy and explain how multiplier changes when we
have an...

. Suppose an economy is represented by the following
equations.
Consumption function C = 200 + 0.8Yd
Planned investment I = 400
Government spending G = 600
Exports EX = 200
Imports IM = 0.1Yd
Autonomous Taxes T = 500
Marginal Tax Rate t=0.2
Planned aggregate expenditure AE = C + I + G + (EX - IM)
By using the above information calculate the equilibrium level
of income for this economy and explain why fiscal policy becomes
less effective...

The following is a model that describes the economy of Ghana
with all values in (GHȼ million).
Y = C + I + G + X – M
C = 1200 + 0.9Yd Yd
Yd = Y – T
T = 200 + 0.1Y
I = 300
G = 1000
X = 600
M = 400 + 0.1Yd
(where Y is national income, C is consumption, G is government
spending, X is export, M is import, Yd is disposable income...

. Suppose an economy is represented by the following
equations.
Consumption
function
C = 200 + 0.8Yd
Planned
investment
I = 400
Government
spending
G = 600
Exports
EX = 200
Imports
IM = 0.1Yd
Autonomous
Taxes
T = 500
Marginal Tax
Rate
t=0.2
Planned aggregate
expenditure AE = C
+ I + G + (EX - IM)
By using the above information calculate the equilibrium level
of income for this economy and explain why fiscal policy becomes
less effective...

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...

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