Question

In an open keynesian economy, the domestic households’ consumption Cpl = 100 + 0,75Yd, investment I...

In an open keynesian economy, the domestic households’ consumption Cpl = 100 + 0,75Yd, investment I = 400, the net tax rate t = 0,2, government expenditure on goods and services G = 300, exports X = 200, and the marginal propensity to import MPI = 0,1.

a) Calculate the equilibrium output in this economy.

b) Demonstrate whether leakages equal injections to the circular flow.

Homework Answers

Answer #1

Here,

C = 100 + 0.75Yd

I = 400

t = 0.2

G = 300,

X = 200,

MPI = 0.1

---

a) Y = C + I + G + NX

Y = 100 + [0.75 x (0.8Y)] + 400 + 300 + 200 - (0.1Y)

Y = 1000 + 0.5Y

0.5Y = 1000

Y = 2000

---

b) Leakages = Injections

First, derive the value, of Yd, C, S, M and NT

Now, Yd = C + S

Yd = Y - t

Yd = 0.8Y = 1600

C = 100 + 0.75Yd

Thus, C = 1300

S = 1600 - 1300 = 300

M = 0.1Y = 200

NT = 0.2Y = 400

---

To verify,

S + NT + M = I + G + X

Place the values:

300 + 400 + 200 = 400 + 300 + 200

900 = 900

Hence proved, that Leakages = Injections

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
In a closed economy, the consumption function is: c = 1.15 + 0.75(y - t) billions...
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...
Imagine an economy where an additional injection of $10 billion in export sales results in national...
Imagine an economy where an additional injection of $10 billion in export sales results in national income increasing by $25 billion. There is a marginal propensity to save of 0.19 and a marginal propensity to tax of 0.18. What is the marginal propensity to import? Imagine an economy where: Autonomous expenditure is $40, equilibrium national income is $100, full employment output is $150, the marginal propensity to consume is 0.6, the size of the multiplier is 2.5 What is the...
Honduras is a small open economy (an open economy is an economy that trades with other...
Honduras is a small open economy (an open economy is an economy that trades with other countries). Suppose Honduras imposes a strict limit on the number of imports entering Honduras. As a result in the fall of imports the ________ will ________ and equilibrium output will ________. Group of answer choices: - 45-degree line; shift downward; increase - 45-degree line; shift downward; decrease - 45-degree line; shift upward; increase - 45-degree line; shift upward; decrease - planned expenditure curve (E);...
In an economy with no exports and​ imports, autonomous consumption is ​$2 ​trillion, the marginal propensity...
In an economy with no exports and​ imports, autonomous consumption is ​$2 ​trillion, the marginal propensity to consume is 0.6​, investment is ​$5 ​trillion, and government expenditure on goods and services is ​$6 trillion. Taxes are ​$4 trillion and do not vary with real GDP. If real GDP is ​$33.1, calculate disposable​ income, consumption​ expenditure, and aggregate planned expenditure. What is equilibrium​ expenditure? The author got the equilibrium expenditure is ​$26.5 trillion but the expert got 25. Please break down...
In the Keynesian Model assume the following information: C=1000+0.5Yd I=300 G=200 T=100 here Yd=Y-T. Note that...
In the Keynesian Model assume the following information: C=1000+0.5Yd I=300 G=200 T=100 here Yd=Y-T. Note that I, G, T, represents private investment, Government spending and Taxes, respectively. What are: (i) the total injections and (ii) total leakages What is the equilibrium level of income, consumption, and saving and disposable income Assume that the level of output is 1200 how does the economy adjust to equilibrium, specifically mention inventory levels. Suppose private investment will decrease by 150, by how much the...
Suppose an economy is represented by the following equations. Consumption function C = 300 + 0.8Yd...
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...
On Sun Island, a closed economy, the consumption function is c = 1 + 0.75(y -...
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 following table is given: Y is income, C is consumption expenditures, I is investment expenditures,...
The following table is given: Y is income, C is consumption expenditures, I is investment expenditures, G is government expenditures, X is exports and M is imports. Y C I G X M 100 110 50 60 60 15 200 170 50 60 60 30 300 230 50 60 60 45 400 290 50 60 60 60 500 350 50 60 60 75 600 410 50 60 60 90 Calculate total expenditures. Find the equilibrium level of income. Calculate Marginal...
The MPC for a closed economy is 0.75. Autonomous consumption is $500, investment is $300, and...
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?
. Suppose an economy is represented by the following equations. Consumption function                            &nb
. Suppose an economy is represented by the following equations. Consumption function                                      C = 200 + 0.8Yd Planned investment                                                         I = 400 Government spending                                                   G = 600 Exports                                                                      EX = 200 Imports                                                                   IM = 0.1Yd Autonomous Taxes                                                       T = 500 Marginal Tax Rate                                                               t=0.2 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 why fiscal policy becomes less effective...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT