2. Consider an economy that is characterised by the following set of equations:Cco + c¡YpYpY – TIbo + bịYGovernment spending (G) and taxes (T) are constant. Note that investment (1) is proportional tooutput (Y).a) Solve for equilibrium output.b) Using your answer derived in (a) identify and discuss the multiplier. How does the relationbetween investment and output affect the value of the multiplier?c) For the multiplier to be positive what condition must be satisfied?Please note: The two questions are equally weighted in terms of marks. To help explain your answersand analysis, you should always attempt to use diagrams, mathematical demonstration whereapplicable and convey the economic intuitions behind the results. Do not forget to label your graphs.Key Marking criteria will include:• Initiative: Originality, innovativeness of answer• Assignment Structure: Clarity of aims, objective, structure and presentation• Quality of Writing: Readability and ability to convey key message(s) concisely• Quality/Scope of Literature Review: Understanding of established knowledge• Suitability of Literature: Use of suitable sources, focused to answer key research aims• Literature Analysis: Quality/level of analytical skill demonstrated• Insightfulness of Analysis: Interest and usefulness of findings, conclusions drawn• Understanding: Assignment demonstrates students have understood key topics

2. Consider an economy that is characterised by the following set of equations: C = co+c¡Yp Yp = Y -T I = bo+bjY Government spending (G) and taxes (7) are constant. Note that investment (/) is proportional to output (Y). a) Solve for equilibrium output. b) Using your answer derived in (a) identify and discuss the multiplier. How does the relation between investment and output affect the value of the multiplier? c) For the multiplier to be positive what condition must be satisfied?

2. Consider an economy that is characterised by the following set of equations: C = co+c¡Yp Yp = Y -T I = bo+bjY Government spending (G) and taxes (7) are constant. Note that investment (/) is proportional to output (Y). a) Solve for equilibrium output. b) Using your answer derived in (a) identify and discuss the multiplier. How does the relation between investment and output affect the value of the multiplier? c) For the multiplier to be positive what condition must be satisfied?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Stiller 1. Suppose an economy is represented by the following equations. Consumption function C = 100 + 0.8Yd Planned investment I = 38 Government spending G = 75 Exports EX = 25 Imports IM= 0.05Yd Autonomous Taxes T = 40 Planned aggregate expenditure AE = C + I + G + (EX - IM) a. By using the above information calculate the equilibrium level of income for this economy, b. Calculate the value of expenditure multiplier. c. Suppose that government spending is increased by 5, what will happen to the equilibrium income level?
6) Suppose the economy is closed and is characterized by the following behavioral equations: C=C₁+C₁YD Y₁ = Y-T I=b₁ + b₂Y a. Government spending and taxes are constant. Solve for the equilibrium output. What is the value of the multiplier? How does the relationship between investment and output affect the value of the multiplier as compared to the case when investment was exogenous? For the multiplier to be positive what condition must (c₁ +b₁ ) satisfy? Explain your answers? b. Suppose that the parameter bo, sometimes called business confidence, increases. How will the equilibrium output be affected? Will investment change by more or less than the change in bo? Why? What will happen to national saving?
6) Suppose the Canadian economy is represented by the following: C=100+0.8Yd T-$50 I-20+0.1Y G-200 Yd-Y-T a) What is the equilibrium level of output? (Hint: first, drive the equation for C as a function of Y, then drive the equation for Z) b) What is the multiplier?
5
On the following graph illustrate the impact of a sudden decline in consumer confidence that reduces autonomous consumption by $50 billion. Assume MPC = 0.8.(a) What is the new equilibrium level of real output? (Don't forget the multiplier.)(b) How large is the real GDP gap?(c) What has happened to average prices?
Question 2 Refer to the information provided in Figure 23.9 below to answer the question(s) that follow. Aggregate expenditures ($ millions) 225 200 175 150 45° AE 100 200 300 Aggregate output ($ millions) Figure 23.9 a) Refer to Figure 23.9. Write the equation for the aggregate expenditure function (AE). Show your work. b) Refer to Figure 23.9. What is the equilibrium level of output in this economy? State the equilibrium condition used to determine this. c) Explain the forces that maintain/drive the economy to this equilibrium by considering what will happen at the following two levels of output, $300 million and $100 million. You will need to discuss changes in investment through unplanned inventories and the response of output. d) Refer to Figure 23.9. How will equilibrium aggregate expenditure and equilibrium aggregate output change as a result of a decrease in investment by $20 million? e)The interest rate is an exogenous factor that effects the level of investment in an economy.…
n an effort to make sales projections, M/s K, B and A, the three B-school executives of Vengaboys Inc., were discussing about the national income and its growth in Ibiza. K had estimated a linear consumption function for Ibiza to be C = 100 + 0.6 Y, and investment to be I = 100 per ear. In Ibiza, there was no income tax and government spending was minimal (assume 0). Ibiza was a closed economy, and hence no exports and imports. (i)K immediately knew what the investment Multiplier was. Can you find out? (ii)What is the level of income in Ibiza? (iii)K estimated that with Government spending 100 on a new road to be constructed, the income levels are sure to go up. K quickly calculated the change in income and the new income level to be:
!
1. An economy has the following variables: Goods Market: Y=500 C=25 + 2/3 (Y-T)-100r I=120-300r G=75 T=50 a) Graphically draw (a rough sketch is fine) of the goods market. Assuming you start at the closed economy equilibrium what is the initial r, S, I? b) Suppose that there is a reduction of G by 25, What is the new r, S, I? Show this graphically. c) Starting with the initial information suppose instead that there is a reduction of I by 25, What is the new r, S, I? Show this graphically.
A reduction in the marginal propensity to import will cause A) the multiplier to increase and a given change in government spending (G) to have a larger effect on domestic output. B) the multiplier to increase and a given change in government spending (G) to have a smaller effect on domestic output. C) the multiplier to decrease and a given change in government spending (G) to have a larger effect on domestic output. D) the multiplier to decrease and a given change in government spending (G) to have a smaller effect on domestic output.