12. Assume that the economy is initially at its equilibrium level of GDP (Y). Assume that Ilp, G, T and Nx are constant numbers. If planned investment decreases by 20, government spending increases by 30, and taxes increase by 10, what is the change in the equilibrium level of GDP (Y)
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- 4. a) Draw a TP-TE (or Keynesian cross) graph for South Africa. Suppose Real GDP is $425 billion while the Real GDP where TE=TP is $475 billions. total, Expenditure (billions) TE-TH HEL th I 1 45 425 Q2 475 Q1 TP - TE total Production (billions) b) If Real GDP is $425 billion, what will happen to inventories, to firm's production and to the Real GDP? Inventories will decrease and Production will increase GDP increases to $475 billion and realExercise 4. Imports and the multiplier. The consumption multiplier tries to capture the idea that individuals increase their consumption expenditures when their income increases, even when it is only a short-term increase and their life time income didn't change. However, individuals not only consume domestic products but also, they import part of their consumption. Therefore, if domestic consumption reacts to changes in current income, then it is natural to think that consumption of foreign goods should increase as well. For example, when the economy is booming, imports usually rise. To incorporate this channel into the model, suppose the import equation is given by Mt =āmīt + xm Ỹt Ỹt are described by equations in the previous exercise It = āƒŸt — b(R₁ − ñ) Yt, Ct =ācīt + x Ỹt Ỹt. The other categories of expenditures follow the same rules as in class. a) Derive the IS curve for this new specification. b) What is the economic explanation for why the parameter xm shows up in the…2. What would be the impact of changing the determinant variables given in the first column (below) on investment? Factors affecting Investment Effect on Investment decrease in interest rate Increase in interest rate Increase in prices of capital goods There is no technology available in the country Demand for consumer goods decrease Government decided to increase corporation tax Increase in Subsidies
- 3. If the current equilibrium GDP value is $925,000 and investment spending decreases by $25,000 with an MPC of 0.8, solve for the new equilibrium GDP.Suppose that country Y is identical to country Z, with the exception that country Y's population has a lower marginal propensity to consume than country Z. Initially, both countries have the same level of real GDP. The diagram shows the expenditure curve for country Y. Using the line drawing tool, draw the expenditure curve of country Z in Figure 1. Label your curve 'Ez'. Carefully follow the instructions above and only draw the required object. Figure 1 Planned Expenditure ($, trillions) Real GDP, Y ($, trillions) Ex Select ✓ LineAdvanced analysis) Assume the following consumption schedule: C = 20 + 0.9Y, where C is consumption and Y is disposable income. At a(n) $1,200 level of disposable income, the level of saving is
- Moving to another question will save this response. Quèstion 23 Assume the following consumption schedule: C= 20 + 0.9 Y, where C is consumption and Y is disposable income. At $1,100 level of disposable come: (show your calculations) a Find out the level of saving and consumption? ( b. How much are the APC and APS (to one decimal place)? c. If disposable income increased to $2,800 and saving is $345 now. What are MPC and MPS (to two decimal places)? J For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). BIUS Paragraph Arial 10pt 三v 三v A v In X, 田 田 田国 ABC 三 三 +, 旺困 田 田 |用4. Planned expenditure and income The following table shows consumption (C), investment spending (I), and government purchases (G), in a hypothetical economy for various levels of income. Also assume that there is an income tax rate of 25%, that base consumption is $100 billion, and that the MPC is 0.333, or 1/3. This economy is closed, with no international trade, therefore net exports are equal to zero and should not be considered. Use the given information to fill in disposable income, consumption, and planned expenditures in the following table. Income: Real Disposable (After Tax) Planned GDP Income C I, G Expenditures (Billions of (Billions of dollars) (Billions of (Billions of (Billions of (Billions of dollars) dollars) dollars) dollars) dollars) 100 50 150 100 50 150 200 50 150 300 50 150 400 50 150 500 50 15012:15 e itc.birzeit.edu 1-Complete the accompanying table. Level of output and income Consumption Saving АРС (GDP = DI) $110 -$15 135 180 15 205 30 230 45 255 60 280 75 305 90 330 105 (a) What is the break-even level of income? How is it possible for households to dissave at very low-income levels? (b) If the proportion of total income consumed decreases and the proportion saved increases as income rises, explain how the MPC and MPS can be constant at various levels of income. II
- 2. From what was learned in class, explain what the values of the slope and vertical intercept of the aggregate consumption function mean from an economic perspective. Income-expenditure equilibrium Using the data in the following table to complete the following questions. GDP YD Planned (billions of dollars) $0 $0 $200 $100 400 400 500 100 800 800 800 100 1,200 1,200 1,100 100 1,600 1,600 1,400 100 2,000 2,000 1,700 100 2,500 2,500 2,000 100 3,000 3.000 2,300 100 1. Complete the columns for AEPlanned and unplanned in the table. 2. What is the value of the MPC? 3. What is the aggregate consumption function? AE Planned Unplanned 4. What is the equation for the planned aggregate expenditure function? 4. 5. What is the value of income-expenditure equilibrium GDP, (Y*)? 6. Explain in economic terms what happens when not in the income-expenditure equilibrium? Both when GDP > AE planned and GDP < AE planned. For each situation what needs to happen to move the economy toward equilibrium?.2. List four factors that could shift the consumption schedule except disposable income. Shifts in the consumption schedule could be caused by any of the non-income determinants of consumption and saving. This includes changes in any of the following: а) b) c) d) When wealth increases, it shifts the consumption schedule (upward , downward ) as people consume more at each level of disposable income. There is an opposite effect on saving. The saving schedule shifts (upward , downward ) at each level of disposable income because people save less. ) effect occurs when there is a significant drop in consumer wealth that A(r will shift the consumption schedule downward. During the Great Recession of 2007–2009 there was a "reverse wealth effect" because as wealth declined during the recession, people consumed less and saved ( more, less ). Such a situation creates a paradox of thrift in which more saving helps individual household budgets, but as people cut back on their consumption and…multiplier? 3. Draw a graph representing a hypothetical economy. Carefully label the two axes, the S+ T+ IM curve, the I+G+ EX curve, and the equilibrium level of real GDP. Illustrate the effect of an increase in the level of autonomous saving.