2. An economy is initially described by the following equations:C= 600 + 0.75(Y - T)I= 1,200 – 50iM/P = Y – 200iG= 2000%3DT= 2000M = 4,000P = 2a. Derive and graph the IS curve and the LM curve. Calculate the equilibrium interest rateand level of income. Label that point A on your graph.b. Suppose that a newly elected president cuts taxes by 20 percent. Assuming the moneysupply is held constant, what are the new equilibrium interest rate and level of income?What is the tax multiplier?1c. Now assume that the central bank adjusts the money supply to hold the interest rateconstant.d. What is the new level of income? What must the new money supply be? What is thetax multiplier?e. Now assume that the central bank adjusts the money supply to hold the level of incomeconstant. What is the new equilibrium interest rate? What must the money supply be?What is the tax multiplier?

Given, C= 600+0.75 (Y-T) I= 1,200- 50i M/P=Y-200i G=2000 T= 2000 M=4000 P=2

Answered: . An economy is initially described by…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Question 3 of 16 Income and consumption changes for five people are shown in the table. Given this information, rank the marginal propensities to consume (MPC) for the five people from largest to smallest. Largest MPC Smallest MPC Answer Bank Bert Doug Eli Carter Al Name Income change Consumption change Al +$5,000+$5,000 +$3,000+$3,000 Bert +$2,500+$2,500 +$800+$800 Carter +$1,000+$1,000 +$800+$800 Doug −$2,500−$2,500 −$1,750−$1,750 Eli −$5,000−$5,000 −$2,000−$2,000
Need help with this. Thanks! Just for information the point can move left and right and the line can move up and down. When line moves up the point can move to the left only and when the line moves down, the point can move to the right only. I hope that makes sense to you.
Suppose you know the following facts about consumer behavior of Amy in 2019. In a year, Amy spends $10000 on basic household items regardless of how much she is earning. For every dollar of disposable income earned, Amy spends 50% on extra purchases. Amy pays taxes in the amount of $1000, and receives no transfers. Use this information to: Derive Amy’s consumption function in nominal terms. Suppose the price level index in the economy for 2019 is estimated to be P = 2. Rewrite the consumption function in real terms.
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Which of the following correctly describes how a decrease in the price level affects consumption spending? Select one: a. A decrease in the price level raises real wealth, which causes consumption to increase. b. A decrease in the price level decreases the amount of money a household needs to buy goods and so raises the interest rate, which causes consumption to increase. c. A decrease in the price level increases the amount of money a household needs to buy goods and so raises the interest rate, which causes consumption to increase. d. A decrease in the price level lowers real wealth, which causes consumption to decrease.
Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.50. That is, if disposable income increases by $1, consumption increases by 50c. Suppose further that last year disposable income in the economy was $400 billion and consumption was $350 billion. On the following graph, use the blue line (arcle symbol) to pict this economy's consumption function based on these data. CONSUMPTION (Bions of dollars) ) 700 600 500 400 300 200 100 0 -100 9 100 200 300 400 500 000 DISPOSABLE INCOME (Billions of dollars) 700 000 From the preceding data, you know that the level of savings in the economy last year was 3 economy is billion and the marginal propensity to save in this Suppose that this year, disposable income is projected to be $600 billion. Based on your analysis, you would expect consumption to be 3 billion and savings to be S billion,
2. The consumption function Consider a country with the national income of $12 billion, the amount of taxes paid by households of $3 billion, and household consumption of $7 billion. Suppose that the marginal propensity to consume (MPC) is 0.75. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. Hint: You should plot the first point where household consumption equals $7 billion. Then, plot the second point when real disposable income rises by $4 billion. REAL CONSUMPTION (Billions of dollars) 20 18 16 + 14 12 10 0 0 2 4 6 8 10 12 14 16 18 20 REAL DISPOSABLE INCOME (Billions of dollars) -0 O $7.75 billion O $9.75 billion O $7.5 billion O $10.75 billion Consumption Function (?) Suppose now that country's national income increases to $13 billion. Assuming the amount paid in taxes is fixed at $3 billion and MPC= 0.75, what will be the new household consumption?

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