d. Draw a Keynesian-cross model. Label the output level of 1,400 and the equilibrium output level, and the corresponding levels of planned expenditure. e. What is (the Keynesian) government spending multiplier? f. How much does equilibrium income decrease when government spending decreases from 300 to 100? Suppose the natural rate of output is 1 600 By what percentage is the equilibrium output above or below the natural rate of output? According to

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

Help on parts d - i

Consider a closed economy to which the Keynesian-cross analysis applies.
Consumption is given by the equation C = 100 + 0.6*(Y – T).
Planned investment is 300, as are government spending and taxes.
If current output is 1,400, what is planned consumption? What is planned expenditure?
a.
b.
What is inventory accumulation (i.e., unexpected increase in inventory) or decumulation (i.e., unexpected decrease in inventory)? Should
equilibrium output be higher or lower than 1,400?
с.
What is equilibrium output? What is equilibrium consumption?
d.
Draw a Keynesian-cross model. Label the output level of 1,400 and the equilibrium output level, and the corresponding levels of planned
expenditure.
e.
What is (the Keynesian) government spending multiplier?
f.
How much does equilibrium income decrease when government spending decreases from 300 to 100?
g.
Suppose the natural rate of output is 1,600. By what percentage is the equilibrium output above or below the natural rate of output? According to
the Okun's law, how much is cyclical unemployment?
h.
Should the government increase or decrease government spending to reach the natural rate of output? By how much?
i.
Should the government raise or cut taxes to reach the natural rate of output?
Transcribed Image Text:Consider a closed economy to which the Keynesian-cross analysis applies. Consumption is given by the equation C = 100 + 0.6*(Y – T). Planned investment is 300, as are government spending and taxes. If current output is 1,400, what is planned consumption? What is planned expenditure? a. b. What is inventory accumulation (i.e., unexpected increase in inventory) or decumulation (i.e., unexpected decrease in inventory)? Should equilibrium output be higher or lower than 1,400? с. What is equilibrium output? What is equilibrium consumption? d. Draw a Keynesian-cross model. Label the output level of 1,400 and the equilibrium output level, and the corresponding levels of planned expenditure. e. What is (the Keynesian) government spending multiplier? f. How much does equilibrium income decrease when government spending decreases from 300 to 100? g. Suppose the natural rate of output is 1,600. By what percentage is the equilibrium output above or below the natural rate of output? According to the Okun's law, how much is cyclical unemployment? h. Should the government increase or decrease government spending to reach the natural rate of output? By how much? i. Should the government raise or cut taxes to reach the natural rate of output?
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 3 images

Blurred answer
Knowledge Booster
Cost of Production
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.
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education