3.A In the simple Keynesian model, interest rates are fixed. Given the following information: C= 100+ 0.5 YD 1₂ = 75 G = 100 NX = 25 E₂=C+I+G + NX YD=Y-T T = 0.20Y (i) Calculate the planned expenditure curve and illustrate graphically. Show your calculations. (You can use the graph paper on the last page but it's optional. But be sure your graph is drawn to scale and clearly labeled). Planned Expenditure Curve Equation: (ii). What is the equilibrium GDP? Illustrate on your graph. Show your calculations. Equilibrium GDP (iii) What is the budget surplus? Show your calculations. Budget Surplus 3 B. Suppose households decide to increase saving and decrease consumption so that Consumption falls by 60 so that the new Consumption function is: C = 40 +0.5 YD (i) Calculate the new planned expenditure curve and equilibrium GDP. Illustrate this on the same graph as part A, labeling the old and new curves and equilibria carefully. Show your calculations. New Planned Expenditure Curve Equation: New Equilibrium GDP Question 3 continued: (ii) What is the budget surplus? Show your calculations. Explain why this is larger or smaller than in part A. Budget Surplus__ (iii). What is the multiplier for the change in Consumption of 60? Calculate the multiplier two ways, using the information on the change in Consumption and with the formula. Show your calculations. Multiplier (iv). Would the multiplier be higher or lower if the tax rate were lower? Explain why using economic reasoning. 3C. In the neoclassical growth model, an increase in saving has the opposite effect on GDP that it has in the simple Keynesian model. Explain why and illustrate this with a neoclassical growth model graph.
3.A In the simple Keynesian model, interest rates are fixed. Given the following information: C= 100+ 0.5 YD 1₂ = 75 G = 100 NX = 25 E₂=C+I+G + NX YD=Y-T T = 0.20Y (i) Calculate the planned expenditure curve and illustrate graphically. Show your calculations. (You can use the graph paper on the last page but it's optional. But be sure your graph is drawn to scale and clearly labeled). Planned Expenditure Curve Equation: (ii). What is the equilibrium GDP? Illustrate on your graph. Show your calculations. Equilibrium GDP (iii) What is the budget surplus? Show your calculations. Budget Surplus 3 B. Suppose households decide to increase saving and decrease consumption so that Consumption falls by 60 so that the new Consumption function is: C = 40 +0.5 YD (i) Calculate the new planned expenditure curve and equilibrium GDP. Illustrate this on the same graph as part A, labeling the old and new curves and equilibria carefully. Show your calculations. New Planned Expenditure Curve Equation: New Equilibrium GDP Question 3 continued: (ii) What is the budget surplus? Show your calculations. Explain why this is larger or smaller than in part A. Budget Surplus__ (iii). What is the multiplier for the change in Consumption of 60? Calculate the multiplier two ways, using the information on the change in Consumption and with the formula. Show your calculations. Multiplier (iv). Would the multiplier be higher or lower if the tax rate were lower? Explain why using economic reasoning. 3C. In the neoclassical growth model, an increase in saving has the opposite effect on GDP that it has in the simple Keynesian model. Explain why and illustrate this with a neoclassical growth model graph.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
ALL parts needed please
Transcribed Image Text:3.A In the simple Keynesian model, interest rates are fixed. Given the following information:
C= 100+ 0.5 YD
1₂ = 75
G = 100
NX = 25
E₂=C+I+G + NX
YD=Y-T
T = 0.20Y
(i) Calculate the planned expenditure curve and illustrate graphically. Show your calculations. (You can use
the graph paper on the last page but it's optional. But be sure your graph is drawn to scale and clearly labeled).
Planned Expenditure Curve Equation:
(ii). What is the equilibrium GDP? Illustrate on your graph. Show your calculations.
Equilibrium GDP
(iii) What is the budget surplus? Show your calculations.
Budget Surplus
3 B. Suppose households decide to increase saving and decrease consumption so that Consumption falls by 60
so that the new Consumption function is:
C = 40 +0.5 YD
(i) Calculate the new planned expenditure curve and equilibrium GDP. Illustrate this on the same graph as part
A, labeling the old and new curves and equilibria carefully. Show your calculations.
New Planned Expenditure Curve Equation:
New Equilibrium GDP
Transcribed Image Text:Question 3 continued:
(ii) What is the budget surplus? Show your calculations. Explain why this is larger or smaller than in part A.
Budget Surplus__
(iii). What is the multiplier for the change in Consumption of 60? Calculate the multiplier two ways, using the
information on the change in Consumption and with the formula. Show your calculations.
Multiplier
(iv). Would the multiplier be higher or lower if the tax rate were lower? Explain why using economic
reasoning.
3C. In the neoclassical growth model, an increase in saving has the opposite effect on GDP that it has in the
simple Keynesian model. Explain why and illustrate this with a neoclassical growth model graph.
Expert Solution
Step 1
SKM:
SKM or Simple Keynesian Model describes the AE-AS equilibrium in the short run.
Aggregate expenditure determines the total expenditure to be made by all participants of an economy in a year.
Whereas, aggregate supply is the total supply of end commodities from all the producers of an economy.
The point where the AE equates to the AS refers to the market equilibrium.
Trending now
This is a popular solution!
Step by step
Solved in 10 steps with 5 images
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.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
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)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
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-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education