Consider a simple macro model with demand-determined output. Which of the followingparameters will produce the most stable real GDP in the face of autonomous expenditure shocks?A.MPC = 0.7, t = 0.1, m = 0.4B.MPC = 0.8, t = 0.2, m = 0.3C.MPC = 0.8, t = 0.1, m = 0.2D.MPC = 0.9, t = 0.2, m = 0.4E.MPC = 0.7, t = 0.3, m = 0.2

Autonomous expenditure refers to expenditures that are not dependent on the level of income, and are…

Answered: Consider a simple macro model with…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose GDP = $10,000, autonomous consumption is $600 and planned investment spending is $350, the marginal propensity to save is 0.75, and there is no Government and no foreign sector. What is the equation of the Planned Aggregate Expenditure (AE) function? AE=0.20Y + 300 AE=0.80Y + 500 AE=0.80Y + 900 AE=0.25Y + 950
Consider the Aggregate expenditure model. Where:AD = C + I + G + NX (1)where I, G, and NX are all autonomous.C = C + c∗(Y + T R − T A)(2)where T A = tY with t ∈ [0, 1] is the proportional tax rate and c∗ ∈ (0, 1) is themarginal propensity to consume.a. Using the information above, solve for AD. Combineall the autonomous terms into one term, A. b. In an (x, y) plane, where Y is on the horizontal axis and AD is on thevertical axis, illustrate the AD curve you derived above along with the 450line.Make sure to explain how you got the Y-intercept and solve for the slope c. Provide an economic interpretation for the slope of the AD function. d. Solve for the equilibrium level of output and show what happens to outputwhen G increases by 1 unit. That is, what is ∆Y ? Show your result graphicallyand explain how the AD curves shifts and by how much. Briefly explain.
a) What generally happens to the major macroeconomic variables such as GDP, unemployment rate, and inflation rate during an economic recession? b) Define economic expansion using the reference terms of actual GDP and potential GDP. c) Explain how investment spending and interest rate related. What is the reason behind such a relationship? d) Find the correlation coefficient between interest rate and Real Investment. Does this (actual) value support the theoretical relationship between the variables? Explain. (e) Explain the importance of investment spending for the economy. Only typed answer
Consider the simplest macro model with demand-determined output. The equations are: C = 100 + 0.8 Yd, Yd = Y-T, I = 400, G = 720, T= .2 Y, X = 130, and IM = 0.14 Y. Autonomous expenditures in this model are 1120. 1380. 1350. 5400. 2700.
If consumption is $5 billion when disposable income is $0, and if the marginal propensity to consume is 0.70, find the national consumption function C(y) (in billions of dollars). C(y)
Consider a keynesian macromodel Y=(C0+G+I) / (1-c) where C0 is autonomus consumption, G is government consumption expenditure, I is investment expenditure, c is the marginal propensity to consume. Assume constant marginal productivity of labor. What will be the result of an increasing government consumption expenditure in this module, if not other paramiters are changed? a. Lower investment. b. Higher employment. c. Higher inflation. d. Lower employement.
Consider an economy described by the IS-LM model. You are given the following data: MPC = 0.6, C * = 10 AE = Y G = 75,T = 60 I(r) = 500 – 1200r M = 250, P = 5 - k(r)Y = 0.1Y – 10r (A) Write out the planned expenditure function and solve for equilibrium output as a function of the interest rate (the IS curve). (B) Using the money demand function, solve for equilibrium output given the interest rate in the money market (the LM curve). (C) Using the IS and LM curves, derive equilibrium output and the interest rate.
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We again assume asimple closed economy with GDP of 100 and:c0(autonomous consumption) = 20c1 (marginal propensity to consume) = 0.6I (investment) = 20.a) Now assume that c0falls by 5 (i.e. 5% of GDP), i.e. for any given level of output,consumption will fall by 5. Show the implied fall in the AD function in yourdiagram and show that output will fall by more than 5.b) Show that the multiplier is equal to 2.5, and hence that, in the new equilibrium,output will have fallen by 12.5 (i.e. by 12.5%)c) How big would the impact be if, say, c1 = 0.4 or c1 = 0.8? Explain the difference.
In the Keynesian short-run macro model, a fall in the money supply will a)move the economy to the left along the aggregate expenditure line. b)shift the aggregate expenditure line downward. c)move the economy to the right along the aggregate expenditure line. d)shift the aggregate expenditure line upward. e)cause the aggregate expenditure line to rotate until it is flat.
Match the following terms ( terms are labeled 1-10 )to the correct definition(definitions are labeled a through J) aggregate consumption function, multiplier, planned aggregate expenditure (PAE), income-expenditure equlibrium GDP, marginal propensity to consume (MPC), consumption function, unplanned inventory investment, actual investment spending,inventory, autonomous spending A) The amount by which consumption rises when disposable income rise by one dollar marginal propensity to consume (MPC) B) The level of output (real GDP) at which output (real GDP) equals planned aggregate expenditure. income-expenditure equlibrium GDP C) The ratio of total change in real GDP caused by an autonomous change in aggregate spending. multiplier D) Total planned spending on final goods and services in the economy. aggregate consumption function E) The equation showing how individual household's consumer spending varies with its current disposable income. consumption function F) Consumption…
Consider a simple macro model with a constant price level and demand determined output. The equations of the model are c=90+0.36y I=155 G=290’T=125 and IM=0.06Y. A national income of 1100 results in desired aggregate expenditure of…

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