8. The income-expenditure model Consider a small economy that is closed to trade, so its net exports are equal to zero. Suppose that the economy has the following consumption function, where C is consumption, Y is real GDP, I is investment, Gis government purchases, andT stands for net taxes: 40 + 0.5 x (Y-T) Suppose G- $315 billion, I- $50 billion, andT-$10 billion. Given the consumption function and the fact that for a closed economy total expenditure can be calculated as Y C+1+G, the equilibrium output level is equal to billion. Suppose the government purchases are reduced by $200 billion. The new equilibrium level of output will be equal to Based on the effect of the change in government purchases on equilibrium output, you can tell that this economy's spending multiplier is equal to

8. The income-expenditure model Consider a small economy that is closed to trade, so its net exports are equal to zero. Suppose that the economy has the following consumption function, where C is consumption, Y is real GDP, I is investment, Gis government purchases, andT stands for net taxes: 40 + 0.5 x (Y-T) Suppose G- $315 billion, I- $50 billion, andT-$10 billion. Given the consumption function and the fact that for a closed economy total expenditure can be calculated as Y C+1+G, the equilibrium output level is equal to billion. Suppose the government purchases are reduced by $200 billion. The new equilibrium level of output will be equal to Based on the effect of the change in government purchases on equilibrium output, you can tell that this economy's spending multiplier is equal to

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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33)Consider the following consumption function: C = 800 + 0.75 YD for the fictitious economy of Zapland. If the government increases its purchase of goods and services by $200 million, what is the change in GDP? Assume that there is no increase in the price level. (Note negative means decrease) Select one: a. $2,000 million b. $800 million c. $400 million d. -$800 million e. -$1,000 million
1. Consumption = 13,309 Exports = 2,316 Government purchases = 3,331 Saving = 6,607 Government budget deficit = 4,000 Imports = 2.883 %3D a. What is gross domestic product? GDP = b. What is investment? c. What is disposable income? Yd =. d. What is the level of government transfers minus taxes?
2. Consumption function: C=500+0.8Yd, net tax: T=500, governmentspending: G=500, investment: I=1200, export: X=500 and imprt: M=700. According to this; a) Calculate the equilibrium level of output(Ye). b) Calculate the consumption and saving at Ye. c) Find the change in equilibrium level of output(Ye) if government spending increase 200. Use governmentspending multiplier.
Aggregate Expenditures and Multipliers Assignment a. Using the aggregate expenditure function above, what is the current level of real GDP? b. Using the aggregate expenditure function above, what would be the level of real GDP if the aggregate expenditure function shifted up by $0.2T? c. If Investment expenditures increase by $300B and MPC is equal to 0.90, what will be the increase in real GDP? d. If Government expenditures increase by $800B and MPS is equal to 0.05, what will be the increase in real GDP?
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13. Assuming that an economy’s aggregate demand is given by its domestic consumption C and investment I, AD = C + I = c0 + c1Y + I. In the economy’s goods market equilibrium, this equals its output: AD = Y. Solving for Y this yields: Y = [1/(1 -c1 )] (c0+ I) Given this equation, which of the following statements is correct? 1. The multiplier is given by 1 – c1. 2. The boost in the economy’s output is the same, regardless of whether the aggregate demand shock comes from an increase in investment I or in autonomous consumption c0. 3. The larger the marginal propensity to consume (c1), the smaller the multiplier. 4. If c1 = 1/3, then a £1 million increase in investment would result in a £2 million increase in output. 14. In the US and the UK, loans are…
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?
Fill in the missing cells. Explain adjustment to equilibrium.
3 In the definition of marginal propensity to consume, marginal refers to ______.
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