Question

In a closed economy, the consumption function is:

c = 1.15 + 0.75(y - t) billions of 1992 dollars.

The tax function is:

t = 0.1y + 0.1 billions of 1992 dollars.

Planned investment is $1 billion and planned government
expenditures

are $1.5 billion. Calculate:

The equilibrium level of real GDP.

2. Consumer expenditure

3. Saving

4. The investment multiplier

5. The government budget deficit

6. The leakages from and injections into the circular flow of
income and

expenditure. Do leakages equal injections?

Answer #1

On Sun Island, a closed economy, the consumption function
is
c = 1 + 0.75(y - t) billions of 1992 dollars.
The government of Sun Island levies taxes of $1 billion a year and
buys
goods and services worth $1 billion a year. Investment on Sun
Island is $0.5
billion a year.
5. If investment increases by $0.25 billion a year, what is the
change in real GDP? (3 points)
6. Go back to the initial equilibrium level of GDP....

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?

1.Which of the following is a true statement about the
multiplier? *
The multiplier effect does not occur when autonomous
expenditures decrease
The multiplier is a value between zero and one
The smaller the MPC, the larger the multiplier
The multiplier rises as the MPC rises
2.According to the Keynesian model of the macroeconomic, the
most effective means for closing a recessionary gap is *
Decrease in marginal tax rates which shift SRAS
Increases in government spending which shift AD...

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...

1) In the Keynesian cross, assume that the consumption function
is given by
C=200+0.75 (Y-T)
Planned investment is 100; government purchases and taxes are
both 100.
Graph planned expenditure as a function of income.
What is the equilibrium level of income?
If government purchases increase to 125 (goes up by 25), what
is the new equilibrium income?

C = 50 + 0.80Yd; C = consumption function; Yd = disposable
income (Y-T)
T = 30; T = Tax revenue I = 100;
I = Investment G = 150;
G = Government expenditure
Yf = Full Employment RGDP (Potential RGDP) = 1600
14. Using the value of MPC = 0.75, and knowing the difference
between the values of expenditure multiplier and the tax
multiplier, with reduction of taxes by $300 billion (other things
staying the same), estimate increased level...

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.

The consumption function for a closed economy with a government
sector is:
C = $2 trillion + .6Yd, where Yd =
disposable income = Y – T, and
T = lump sum taxes = $2 trillion
Additionally, planned investment, I, is $1.5 trillion and
government spending G, is
$2.5 trillion.
Find Y* (equilibrium GDP). Find C and S. Find the size of the
multiplier.
Assume the Y* you found above is below the full employment
level of Y,...

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...

You are given the following income-expenditures model
for an economy :
Consumption C = 300 + .64Yd
Tax (T) = $60
Government expenditure G = $100
Investment (I) = $120
From above data calculate the follows:
Equilibrium level of income
At the equilibrium level of income, what is the amount
of consumption?
At the equilibrium level of income, what is the amount
of savings?
Marginal Propensity of Saving (MPS)
Tax multiplier in this economy?
Budget deficit
Unplanned inventory

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