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...

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)...

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...

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.

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

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...

2) Consider the following Keynesian model of the economy.
Consumption Function: C = 12 + .6 Y d,
Investment Function: I = 25 − 50 r,
Government Spending: G = 20,
Tax Collections: T = 20,
Money Demand Function: L d = 2 Y − 200 r,
Money Supply: M = 360,
Price Level: P = 2.
a) Find an expression for the IS curve and plot it.
b) Find an expression for the LM curve and plot it.
c)...

Suppose that the behavior of households, firms and the
government in an economy is determined by the following
equations:
C=30+0.75Yd
II = 15
G = 10
T=30
TR=10
The full employment level of output in the economy is:
YFE = 300
i. Find an expression for aggregate demand (This should take the
form of AD = a + bY, where a and b are numbers):
ii. What is the equilibrium level of output? YE =
iii. If, for some reason,...

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