Question

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 open economy

Answer #1

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?

The US economy is represented by the following equations:
Z=C+I+G, C=300+.5YD, YD =Y T T =400, I =250, G=1000 Given the above
variables, calculate the equilibrium level of output. Now assume
that consumer confidence increases causing a rise in autonomous
consumption (c0) from 300 to 500. What is the new equilibrium level
of output? How much does income change as a result of this event?
What is the multiplier for this economy?

1. Suppose the United States economy is represented by the
following equations: Z= C + I + G , C = 500 + 0.5Yd, Yd = Y − T T =
600, I = 300, G = 2000, Where, Z is demand for goods and services,
Yd is disposable income, T is taxes, I is investment and G is
government spending. Y is income/production. (a) Assume that the
economy is in equilibrium. What does it mean in terms of the...

AE = C + I + G + (X-M)
C – Consumption
I – Investment
G – Government Spending
X – Exports
M – Imports
AE = Y
Y = Income/Output
C = Autonomous Consumption (a) + Marginal Propensity to Consume
(MPC)*Y
i. Autonomous Consumption (a) – Consumption from Wealth (Past
Savings)
*Autonomous Consumption can also be affected by Expectations,
Household Debt, and Taxes. ii. Marginal
Propensity to Consume (MPC) – The percentage of every new dollar of...

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...

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...

If the slope of the consumption function is 0.8, and there is no
income tax or imports, what is the multiplier?
Select one:
a. 0.80
b. 1.25
c. 0.56
d. 5
In the table below shows the aggregate expenditure schedule for
a simple economy. What is autonomous expenditure for this
economy?
Real GDP
Aggregate Expenditure
0
100
100
175
200
250
300
325
400
400
500
475

These equations represent the AE model of Country X and
correspond with Question #1
C = 0.75(DI) + 3000 I = 3000
G = 2000
X = 2000
M = 1000 T = 4000 DI = Y – T
C = consumption expenditure, DI = disposable income I =
autonomous investment
G = government expenditure
X = exports
M = imports
T = tax revenues Y = real GDP
1. What is the value of the government expenditure multiplier in...

Consider an open economy. Let e denote the real exchange rate
and Y denote income. Suppose e = 1.5. Let consumption be given by C
= 500 + 0.8Yd, exports be given by EX = 200 + 0.9e, and imports be
given by IM = 150 + 0.2Yd - 0.5e. Finally, let domestic investment,
government purchases and taxes be, respectively, I = 300, G = 200
and T = 120.
1. What is the import balance?
2. What is the...

Recall that in an open economy Y = C + I + G + NX, where
Net Exports NX = EX - IM.
Suppose a country's exports EX are
independent of (unrelated to) its national income Y, but its
imports IM tend to increase whenever
Y increases.
a. Briefly explain why imports might
behave in this manner.
b.
Given these assumptions draw each of the following curves as a
function of Y
on a
separate...

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