Answered: 1 a)What is the value added definition…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1 a)What is the value added definition of GDP? What is meant by value added? b) Suppose that in a given year, a company spends € 400 million on intermediate goods, €800 million on wages of employees with no other expenses and makes total sales worth of € 1600 million. What is the value added of this company? c) The government wants to increase absolute savings and successfully incentivizes the people to save more (saving rate goes up). Show is a graph, what happens to equilibrium output. How could increase in savings lead to a paradox. 2.) a) What are the elements within autonomous spending? State the formula for the multiplier b)In the graph below, draw the demand function (Z) including autonomous expenditure. Label the area representing autonomous spending. Add the value of equilibrium output that you calculated in part c. ( images) c)Suppose the following characteristics of an economy: C = 150 + 0.4 YD , I = 270, G = 100, T = 50 Calculate the equilibrium output and mark it in the graph above along with labelling the axis. Also calculate the value of consumption and the disposable income. C)Calculate private savings and public savings (i.e. budget surplus or deficit). What is the value of marginal consumption in the equation mentioned above? 3. a) What is meant by “high powered money” (H)? What does the demand for H consist of? Who controls the supply of H? b) Suppose the money demand function is given by Md = $Y (0.9 - 2i) and income is $Y =1100. The price of zero-bond that pays 200€ at maturity is 160€ today. Calculate the Money supply (Ms) in the economy. c) If the European Central Bank wants to increase interest rate by 10 percentage points, at what level it should set the supply of money?

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