Question

Suppose the BreeZa economy can be described by the following equations and values:

C =
400*, * I = 320*,*
G =
100*, * T =
150*, * NX = 100

*mpc* = 0.9*,* c = 8
, *d* = 15*,*
*x* = 10 , *t* =
0.2

In constructing the model, we assumed that the tax, T , was independent of income. Suppose instead that the taxes for the BreeZa economy has a fixed component and a proportional component and takes the form

*T=*T*+tY*

- Solve for the equation for the IS curve for BreeZa economy.
*Show at least three lines of derivation.* - Calculate the government purchases multiplier for BreeZa economy.
- Calculate the tax multiplier for BreeZa economy.

Answer #1

An economy is described by the following equations:
C
= 1,500 + 0.9 (Y – T)
I
p
= 1000
G
= 1,500
NX
= 100
T
= 1,500
Y*
= 8,800
The multiplier for this economy is 10.
Find the effect on short-run equilibrium output of:
a. An increase in government purchases by 100 from 1,500 to
1,600.
Instruction: Enter your response as an integer
value.
Short-run equilibrium output will increase to .
b. A decrease in tax collections...

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)?...

Assume the economy is described by the following:
Y=3,000
C=200+0.9(Y-T)
I=400-40r
G=T=500
R=5
NX=400-400e
Solve for net exports and the real exchange rate.

Suppose the economy of Ansonia is described by the
following:
C=400+0.6Yd, T=600, G=800, I=500
(a) Calculate the equilibrium level of output. Graph your
solution.
(b) If the government spending increases by 200 what is the new
equilibrium level of output? Use the government spending
multiplier.
(c) If the government increases taxes by 200 what is the new
equilibrium level of output? Use the tax multiplier.
(d) If the government increases taxes and spending by 200 what
is the new equilibrium...

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...

. 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...

If a small economy can be described by the following
equations:
C = 50 + 0.75 (Y − T)
I = 180 − 15r
NX =200−50ℇ
M/P =Y - 40r
T =200
G=200
M = 3000
P = 3 r ∗ =6
a. Derive and graph the specific IS *and LM* curves for this
economy.
b. Calculate the equilibrium exchange rate, level of income, and
net exports.
c. Assume a floating exchange rate. Calculate what happens to
the exchange rate,...

Suppose the economy is described by the following equations:
C = 350 + .7(Y – T)
I = 100 + .1Y - 1000i
G = 500; T = 500
Money Supply (M/P)s = 3200
Money Demand (M/P)d = 2Y – 4000i
a.Write an equation for the IS relation.
b.Write an equation for the LM relation.
c.Find the equilibrium levels of Y and i.
d.Write the Aggregate Demand equation for this economy with Y
as a function of P.
e. Suppose...

. 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...

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 = 425 + 0.05Y
a. Solve for equilibrium output Y.
b. What is the value of the expenditure multiplier now? Why would
the expenditure multiplier be bigger?
c. Now, if G increases to 600, by how much will Y increase?
d. Suppose that bo= 425 increases to 525....

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