Question

Consider an economy with no international trade, no government spending and no taxes, whose consumption function and investment function are given by the following equations:

C = 100,000 + .92Y I = 40,000

a. What is the equilibrium level of aggregate output for this economy?

b. What is the saving function for this economy?

c. Check the solution, as we did in class, by showing that at the equilibrium level of Y total spending exactly matches the level of output. At the equilibrium level of Y, what is the level of saving in the economy?

Answer #1

The
components of planned aggregate spending in a certain economy are
given by Consumption Function: C = 800 + 0.75(Y - T) – 2000r
Planned Investment: I p = 400–3000r Government Revenue and
Spending: T = 300 and G = 450 Net Export: NX = 75 where r is the
real interest rate (For example, r = 0.01 means that the real
interest rate is 1 percent). (1) Find the level of public saving.
(2) Suppose that the real interest...

3. The components of planned aggregate spending in a certain
economy are given by Consumption Function: C = 800 + 0.75(Y - T) –
2000r
Planned Investment: Ip = 400–3000r
Government Revenue and Spending: T = 300 and G = 450 Net Export: NX
= 75
where r is the real interest rate (For example, r = 0.01 means
that the real interest rate is 1 percent). (1) Find the level of
public saving.
(2) Suppose that the real interest...

A small closed economy
have the following characteristics
consumption
function=0.9y+100
planned
investment=$460
government
spending=$400
taxes=$0
1.The equation of the
aggregate expenditures line is: *
a.AE = 0.9 Y + 560
b.AE = 0.9 Y + 460
c.AE = 0.9 Y + 960
d.AE = 0.9 Y + 160
2.The government
spending multiplier is: *
a,1
b.0.1
c.10
d.0.01
3.The slope of the
aggregate expenditures curve of this economy is:
a.100
b.460
c.400
d.0.9
4.The Equilibrium
is:
a.Y = 9,600
b.Y...

Let: C = consumption, Ip = investment spending (as a function of
price level), G = government spending, Tx = tax revenue, Yd =
after-tax income, Assume for a given closed economy: C=100 + 0.9 Yd
– 20P Ip= 400 – 40P G=300 T=100 Moreover, aggregate supply curve
for this economy is defined by the following equation: P=1.41 +
0.0001Y
a. According to the investment equation (Ip= 400 – 40P) as
overall price level in the economy increases investment spending...

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 (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)...

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

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...

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 an economy in which taxes, planned investment,
government spending on goods and services, and net exports are
autonomous, but consumption and planned investment change as the
interest rate changes. You are given the following information
concerning autonomous consumption, the marginal propensity to
consume, planned investment, government purchases of goods and
services, and net exports:
Ca = 1,500 – 10r; c = 0.6; Ta = 1,800; Ip = 2,400 – 50r; G =
2,000; NX = -200
(a)Derive Ep and...

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