Question

An economy is described by the following equations:

C = c_{0}+ c_{1}Y_{D}

Y_{D}= Y – T

I = b_{0}+ b_{1}Y

G = G (autonomous)

T = T (autonomous)

Suppose that consumers decide to consume less (and therefore
save more) for any given amount of disposable income. Specifically,
assume that consumer confidence (c_{1)}falls. What will
happen to output, investment, public saving and consumption?

Answer #1

c1 here denotes marginal propensity to consume . So with each dollar rise in disposable income , consumers consume lower fraction of the dollar and save a higher fraction .

Output is GDP = C + I + G ( assuming its a closed economy )

So with fall in c1 , component C falls , hence GDP also falls . When people consume less , there is lack of demand so GDP falls . Investment depends on Y ( output ) . Y depends on YD . So as output falls , investment will also fall . Due to lack of consumer confidence , aggregate demand falls in the economy so investment falls . Private savings rises but public savings are unaffected , since taxes are autonomous and also government expenditure ( G ) . Consumption C falls as mentioned before .

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?

An economy is described by the following equations:
Y = C + I + G
C = c0+ c1.YD
YD= Y – T
T = t1.Y – t0
And 0 < c1< 1,
0 < t1< 1,
c0> 0,
t0> 0,
G and I are autonomous and higher than zero.
Is the following statement true? “An increase in the marginal
income tax rate t1leads to a reduction of the
primary deficit of the government (=G – T)”
Does the tax...

Consider the following behavioral equations:
C=c0 +c1YD T=t0 +t1 Y YD = Y – T
G and I are both constant. Assume that t1 is between 0 and
1.
(1) Solve for equilibrium output and equilibrium taxes.
(2) What is the multiplier? Does the economy respond more to
changes in autonomous spending when t1
is 0 or when t1 is positive? Explain.
(3) Why is the fiscal policy in this case called an automatic
stabilizer?
Now suppose that the government...

Suppose the US economy is characterized by the
following behavioral equations:
C = c0 +
c1*YD
YD = Y –
T
Investment expenditures and Government
spending are exogenously given.
GDP in 2009 was roughly
$16,000 billion. As you know GDP fell by
approximately 4 percentage points in 2009.
If the propensity to consume were 0.8, by how
much would government spending have to have increased to prevent a
decrease in output?
If the propensity to consume were 0.8, by how...

Assume the following information for the economy:
C = c0 + c1Yd, where Yd =
(1-t)Y
C = 200 + 0.75(1-.2)Y
I =
I
I = 700
G =
G
G = 800
X =
X
X = 400
M =
mY
M = 0.1Y
Find Y = E using full E equation method and find
savings

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...

An economy is described by the following equations:
C = 100 + 0.75(Y – T)
IP = 50
G = 150
NX = 20
T = 40
What is the marginal propensity to consume (MPC) in this
economy?
Find the autonomous expenditure (the part of PAE that does not
depend on Y)
What is the equilibrium level of output?
Assume that the economy is NOT in equilibrium, and the level of
output is Y=1,200. How much is planned spending (PAE)?...

Consider an economy described by the following
equations:
Y=C+I+G+NX,
Y=8,000
G=2,500
T=2,000
C=500 +
0.75(Y−T)
I=900−50r
NX=1,500−250ϵ
r=r∗=8.
a.
In this economy, solve for private saving, public saving, national
saving, investment, the trade balance, and the equilibrium exchange
rate.
b.
Suppose now that G is cut to 2,000. Solve for private saving,
public saving, national saving, investment, the trade balance, and
the equilibrium exchange rate. Explain what you find.
c.
Now suppose that the world interest rate falls from 8...

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...

Consider an economy in the short-run described by the following
equations:
Z = C + I + G
G = 500
T = 500
C = 250 + 0.75(Y – T)
I = 625
a. What is the equilibrium condition that allows us to solve for
Y. Find Y. Compute private saving, public saving and total/national
saving at this level of Y.
b. What is the value of the marginal propensity to consume? What
is the value of the expenditure...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 30 minutes ago

asked 40 minutes ago

asked 53 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago

asked 3 hours ago