Question

Use the following macroeconomic model structure to answer the questions followed. Please note that you must show your work of estimations for these numerical multiple-choice questions for gradable credit. Without showing your works of estimation, your answers won’t be credible for take-home exam. 8 pts

C = 300 + 0.8Yd; C = consumption function; Yd (Y-T) = disposable income I = 200; I = Investment
G = 400; G = Government expenditure
T = 200; T = Tax revenue

Also assume that Yf = Full employment GDP (Potential GDP) = 5,000

6.1. The equilibrium GDP level (income) is _________. Hint: Ye = C+I+G a. 2,850

b. 3,700 c. 3,145 d. 3,800

6.2. At the equilibrium level of output, the aggregate consumption level is: a. 3,100

b. 3,250 c. 3,400 d. 3,625

6.3. At the equilibrium level of output, the aggregate saving level is: a. 550

b. 450 c. 400 d. 350

6.4. The MPC and MPS for the economy is respectively: a. 0.9 and 0.1

b. 0.85 and 0.15 c. 0.75 and 0.25 d. 0.80 and 0.20

6.5. The expenditure multiplier for the economy is: a. 10

b. 8 c. 5 d. 4

6.6. The tax multiplier for the economy is: a. -3

b. -4 c. 4 d. 5

6.7. Given the value of full employment level of GDP above, the GDP gap is ______ a. 1,200

b.1,300 c. 1,400 d. 1,500

Hint: GDP gap is the difference between full employment (potential GDP) and existing equilibrium GDP)

6.8. The government spending needed to bridge the GDP gap you found in statement 8.7 above would be _____________
Hint: It is also called recessionary or inflationary gap depending on whether the economy is in state of recession or inflation.

a. 400 b. 350 c. 260 d. 250

Answer 1