Question

Assume: C = 40 + 0.8(Y - T) G = 10 I = 20 T =...

Assume:

C = 40 + 0.8(Y - T)

G = 10

I = 20

T = 0, where T are taxes.

a. Calculate Y at equilibrium

b. Calculate C, I, and G at equilibriu

(c)           Now assume,

EX = 5 + 4EP /P

IM = 10 + 0.1 (Y - T) - 3EP /P

E = 3

P = 1.5

P = 2

Find equilibrium Y.

Homework Answers

Answer #1

(a)

At Equilibrium,

Y = C + G + I

Y = 40 + 0.8(Y - T) + 10 + 20

Y = 70 + 0.8(Y - 0)

Y - 0.8Y = 70

0.2Y = 70

Y = 350

The equilibrium Y is 350.

(b)

C = 40 + 0.8(Y - T) = 40 + 0.8(350 - 0) = 40 + 280 = 320

The C at equilibrium is 320.

The G at equilibrium is 10.

The I at equilibrium is 20.

(c)

EX = 5 + 4EP/P = 5 + [(4*3*1.5)/2] = 5+ 9 = 14

IM = 10 + 0.1(Y - T) - 3EP/P = 10 + 0.1Y - [(3*3*1.5)/2] = 10 + 0.1Y - 6.75 = 3.25 + 0.1Y

At equilibrium,

Y = C + I + G + EX - IM

Y = 40 + 0.8(Y - T) + 20 + 10 + 14 - (3.25 + 0.1Y)

Y = 84 + 0.8Y - 3.25 - 0.1Y

Y = 80.75 + 0.7Y

Y - 0.7Y = 80.75

0.3Y = 80.75

Y = 80.75/0.3 = 269.1667

The equilibrium Y is 269.1667

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Consider the following short-run model of an open economy: Y = C+I+G+NX C = 100+(2/3)(Y-T) I...
Consider the following short-run model of an open economy: Y = C+I+G+NX C = 100+(2/3)(Y-T) I = 200 NX = X-(1/E)IM X = (1/E)400 IM = (1/6)E Y Domestic and foreign prices are constant with P=P*=1. Thus, the real exchange rate is equal to the nominal rate E. The policy makers want to achieve the following targets for output, consumption and net exports: YT=1200, CT=780 and NXT=0. Show how these targets can be achieved using government consumption (G), taxes (T)...
C = 3,500 + 0.5(Y - T) I = I0 = 1,000 G = G0 =...
C = 3,500 + 0.5(Y - T) I = I0 = 1,000 G = G0 = 2,000 X = 600 IM = 400 T = T0 = 2,000 Yp = 10,000 Note: Keep as much precision as possible during your calculations. Your final answer should be accurate to at least two decimal places. a) Find autonomous expenditure. Autonomous Expenditure = $0 b) Find the multiplier. Multiplier = 0 c) Find short-run equilibrium output. Short-run Equilibrium Output = $0 d) Find...
An economy is initially described by the following equations: C = 500 + 0.75(Y - T);...
An economy is initially described by the following equations: C = 500 + 0.75(Y - T); I = 1000 - 50r; M/P = Y - 200r; G = 1000; T = 1000; M = 6000; P = 2; where Y is income, C is consumption, I is investment, G is government spending, T is taxes, r is the real interest rate, M is the money supply, and P is the price level. a. Derive the IS equation and the LM...
3. Now add the foreign sector to the model so that Y = C + I...
3. Now add the foreign sector to the model so that Y = C + I + G + [ X - M ] where the new variables are: X = Xa = 40, and M = Ma + mY = 5 + 0.11Y. The other variables remain the same as in question 2. Solve for the new equilibrium level of national income. Calculate the size of the i) New multiplier ii) Trade balance iii) Budget balance Please see my...
1) C = 40 + 0.6*Y I = 40 G = 20. What is the equilibrium...
1) C = 40 + 0.6*Y I = 40 G = 20. What is the equilibrium output ? .Round if necessary. _________________ 2) C = 100 + 5* Y What is conceptually wrong with this equation ? A)There is nothing wrong with this equation B)Consumption is negatively related to Income C)Your extra consumption can not be more than 100% of extra income. D)When Income is zero, you can not have any consumption. 3) C = 20 + .2*Y What is...
Consider the following model: C=20+0.5(Y-T) I=20-10r T=0 G=50 QUESTIONS: d) Suppose now that there is a...
Consider the following model: C=20+0.5(Y-T) I=20-10r T=0 G=50 QUESTIONS: d) Suppose now that there is a change in public spending so that G=70. What would be the effect on the IS curve? Show your results in a graph. e) Suppose now that the change in d) is neutral to deficit so that G=70 and T=20. What would be the effect on the IS curve? Show your results in a graph. f) Suppose now that interest rate decreases to 0.05. Calculate...
C = 10 - 0.8Y I = 20 - 10r G = 20 Md = (1/10)Y-10r...
C = 10 - 0.8Y I = 20 - 10r G = 20 Md = (1/10)Y-10r M = 40; P=8 Suppose full employment output Yf = 190. Determine what increase in public spending – i.e. expansionary fiscal policy (financed through taxes) - will be necessary to reach this objective.
Suppose that the economy is characterized by the consumption function C=151+ 0.1(Y-T) with exogenous investment I...
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
In the Keynesian cross model, assume that the consumption function is given by C=120+0.8(Y−T). Planned investment...
In the Keynesian cross model, assume that the consumption function is given by C=120+0.8(Y−T). Planned investment is 200; government purchases and taxes are both 400. Y, C, I G&T are all in billions. 1. Graph planned expenditure as a function of income. 2. What is equilibrium income? 3. If government purchases increase to 420, what is the new equilibrium income? What is the multiplier for government purchases? 4. What level of government purchases is needed to achieve an income of...
c = 100 + 0.8 (y - t) i = 500 - 50r g = 400...
c = 100 + 0.8 (y - t) i = 500 - 50r g = 400 t = 400 Md = P(0.2y + 500 – 25r) Price level is fixed at 1. The money supply is 520 The central bank increases the money supply by one unit. Calculate the change in aggregate expenditures. How far does the aggregate demand curve shift?    What is the change in the interest rate and investment? What is the change in consumer expenditure? What is...