Question

Assume the following economy: Autonomous Consumption = £10,000; Marginal Propensity to Consume = 0.8; Business Investment = £30,000 A. Find the equilibrium size of income Y and the size of the Multiplier of Business Investment (hint: to find the Multiplier increase investment by 10,000) (5%) B. Assume now that a government sector is introduced, while business investment is still £30,000. Government spending injects £50,000 into the economy. However, in order to finance its expenditure the government levies an income tax at a rate of 25%. • Find the new equilibrium size of income and calculate the size of the Multiplier of Business Investment (hint: to find the Multiplier increase investment by 10,000) • Identify whether the government balance is balanced or not when I=30,000 and G=50,000 .

Answer #1

Assume the following values: Marginal Propensity to
Consume b = 0.8; Autonomous Consumption a = 200; Investment
Spending I = 250. There is no government spending.
a) For a consumption function C = a + bY, what is the
equilibrium value for income Y in the economy? (The value at which
planned aggregate expenditure and planned output coincide.)
b) What changes when Investment Spending increases to 300? When
it drops to 225?
c) What effect can you observe in the...

in the economy of coconut island, autonomous counsumption
expenditure is $50 million, and the marginal propensity to consume
is 0.8. Investment is $160 million, government expenditure is $190
million, and net taxes are $250 million. Investment, government
purchases, and taxes are constant-they do not vary with income. The
island does not trade with the rest of the world.
a) Draw the aggregate expenditure curve
b) What is the equilibrium real GDP for Coconut Island?
c) What is the size of...

In an economy with no exports and imports, autonomous
consumption is $2 trillion, the marginal propensity to consume is
0.6, investment is $5 trillion, and government expenditure on
goods and services is $6 trillion. Taxes are $4 trillion and do
not vary with real GDP. If real GDP is $33.1, calculate
disposable income, consumption expenditure, and aggregate planned
expenditure. What is equilibrium expenditure?
The author got the equilibrium expenditure is $26.5 trillion
but the expert got 25. Please break down...

The MPC for a closed economy is 0.75. Autonomous
consumption is $500, investment is $300, and government spending is
$400.
a) What is the equilibrium
level of real GDP?
b) If business increases
planned investment expenditure by 300 to 400, what is the new
equilibrium real GDP?
c) What is the slope of the AE
function in this economy and the value of the
multiplier?

Here are some facts
about the economy of Inferior.
Marginal propensity to
consume 3/5 marginal propensity to import 0 autonomous consumption
4 exports 0 private investment 20 income tax rate 0 government
expenditures 0
Income consumption
investment government aggregate expenditures expenditures 0
10
20
30
40
50
60
70
80
90
Suppose that
investment rises to 28. What is the new GDP?

Suppose that you have the following information for an
economy:
Marginal propensity to consume - MPC
0.80
Autonomous consumption - A
$500
Planned investment - PI
$600
Net exports - NX
-$400
Government spending - G
$300
You will need this information for the questions that
follow.
Part 1:
When real GDP is equal to $4,500, aggregate expenditure is equal
to $ .
Part 2:
When real GDP is equal to $5,000, aggregate expenditure is equal
to $ .
Part 3:
When real GDP...

NATIONAL INCOME
The 2019 Zambian economy shows that the autonomous consumption
expenditure is K185 million and the marginal propensity to save is
0.25. Investment function (I)=150+0.125y-10i, government
expenditure is K100 million, and net taxes are K80 million. The
report shows that investment, government expenditure and taxes are
constant. The Central Bank indicated that the money markets are
influenced by the money demand function M^d=300+Y-10i and money
supply function M^s=350+90i. The statistics show that Zambian
economy was not trading with the...

Assume the marginal propensity to consume is 0.8 and potential
output is $800 billion. If actual real GDP is $700 billion, which
of the following policies would bring the economy to potential
output? a. Decrease taxes by $25 billion. b. Decrease government
transfers by $25 billion. c. Decrease taxes by $100 billion. d.
Increase taxes by $100 billion.

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.

Assume the Kenya’s consumption function is
C=1800+0"\.78Yd," suppose the marginal propensity to import (mpm)
is
0.15.
i) What is the autonomous
consumption
ii) Calculate the multiplier assuming an open
economy
iii) Calculate the effect of an increase in government spending of
100M Kshs on the country’s
national
income.

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 9 minutes ago

asked 10 minutes ago

asked 10 minutes ago

asked 13 minutes ago

asked 14 minutes ago

asked 18 minutes ago

asked 27 minutes ago

asked 36 minutes ago

asked 56 minutes ago

asked 58 minutes ago

asked 1 hour ago

asked 1 hour ago