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, G is government purchases, and T stands for net taxes: c=15+0.75 x (Y-T) Suppose G = $90 billion, I $60 billion, and T - $20 billion. Given the consumption function and the fact that for a closed economy total expenditure can be calculated as Y=C+I+G, the equilibrium output level is equal to S billion. Suppose the government purchases are increased by $50 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, G is government purchases, and T stands for net taxes: c=15+0.75 x (Y-T) Suppose G = $90 billion, I $60 billion, and T - $20 billion. Given the consumption function and the fact that for a closed economy total expenditure can be calculated as Y=C+I+G, the equilibrium output level is equal to S billion. Suppose the government purchases are increased by $50 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

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 1.6P

See similar textbooks

Related questions

Q: The following table shows consumption (C), investment spending (I), and government purchases (G),…

A: Assume that, the income tax rate is 25%. Base consumption is $100 (i.e., the consumption at zero…

Q: Suppose that the consumer’s consumption demand function is given by Cd = 0.8(Y−T)+10. Investment is…

A: In the economy the equilibrium occurs at the point where the output produced in the economy (Y) is…

Q: 3. The consumption function Suppose that national income in a country is $30 billion, taxes paid by…

A: The consumption function represents the functional relationship between disposable income(Y-T) and…

Q: Explain graphically the determination of equilibrium GDP for a private economy through the aggregate…

A: Aggregate expenditure: aggregate expenditure is the sum of consumption expenditure, investment…

Q: Saving function = S=- 500 + 0.25 Y, I = 400 - 1250 i Ms = 1200, Mt = 0.20 Y, Mp = 0.05 Y and Msp =…

A: The correct answer is given in the second step .

Q: Refer to the above diagram where Ig is gross Investment, X is exports, G is government purchases, S…

A: For the equilibrium in the economy , the general condition is that the real GDP (Y) in the economy…

Q: Q.3 Suppose that the consumption function is defined as C=a+b(1-k)Y-bT where a-bT =0 and both…

A: In the given consumption function, values of a, b, k and T-bar are exogenously given. Values of C…

Q: onsider a small economy that is closed to trade, so its net exports are equal to zero. Suppose that…

A: The income expenditure model presumes that level of income is determined by the expenditure level. A…

Q: For an economy the following consumption function is given : C = 60+0.75 Y. %3D (a) If investment in…

A: Answer: Y =380

Q: 15. What are the equations for the consumption, net exports, and aggregate expenditures functions?

A: Aggregate expenditure refers to the current value of all the finished goods and services in the…

Q: In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the…

A: In Keynesian macroeconomics when the price level in the economy is assumed to be fixed then planned…

Q: Suppose that initially equilibrium income was 200 units and that this was also the full employment…

A: In Keynesian macroeconomics, when the price level in the economy is assumed to be fixed then the…

Q: Suppose a closed economy with no government spending or taxing is capable of producing an output of…

A: Consumption is the sum of Autonomous consumption and induced consumption. Autonomous consumption…

Q: Use the information below for a four sector economy, answer the following questions: C 300+0.6 Yd T…

A: Let's solve the given questions step by step based on the provided economic model.Given:Consumption…

Q: Fill in the missing values in the following table. Assume that the value of the MPC does not change…

A: It is given in the table that at a real GDP of $13,000, the consumption expenditure is $6,500.At a…

Q: The following table shows consumption (C), investment spending (I), and government purchases (G), in…

A: If the income tax rate is 25%, the disposable income (after tax) is equal to 75% of the real GDP.…

Q: upol data, ans Swing questions. keep egories - these are Consumption (C), Investment (I), Government…

A: National Income: National income of a country means the sumtotal of income earned by the citizens of…

Question

100%

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, G is government purchases, and T stands for net taxes:
C = 15+0.75 x (Y-T)
Suppose G = $90 billion, 1 = $60 billion, and T = $20 billion.
Given the consumption function and the fact that for a closed economy total expenditure can be calculated as Y=C+I+G, the equilibrium output
level is equal to 5
billion.
Suppose the government purchases are increased by $50 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

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Assume there is no discretionary increase in government spending. Explain how an improving economy will affect the budget balance and, in turn, investment and the trade balance.
Suppose the economy is operating at potential GDP when It experiences an increase in export demand. How might the economy increase production of exports to meet this demand, given that the economy is already at full employment?
How would a dramatic increase in the value of the stock market shift the AD curve? What effect would the shift have on the equilibrium level of GDP and the price level?
Economist Arthur Laffer famously pointed out that, in some cases, income tax revenue can actually go up when tax rates go down. Why might this be the case?
What are some fiscal policies for improving the technologies that the economy will have to draw upon in the future?
Explain the difference between the government purchases multiplier and the net tax multiplier. If the MPC falls, what happens to the tax multiplier?
Assume that the newly independent government of Tanzania employed you in 1964. Now free from British rule, the Tanzanian parliament has decided that it will spend 10 million shillings on schools, roads, and healthcare for the year. You estimate that the net taxes for the year are eight million shillings. The government will finance the difference by selling 10-year government bonds at 12% interest per year. Parliament must add the interest on outstanding bonds to government expenditure each year. Assume that Parliament places additional taxes to finance this increase in government expenditure so the gap between government spending is always two million. If the school, road, and healthcare budget are unchanged, compute the value of the accumulated debt in 10 years.
Explain how a shift from a government budget deficit to a budget surplus might affect the exchange rate.