(Figure: Simple Keynesian Model) In the figure, suppose investment has increased from AE =C+lo to AE = C+1. The multiplier equals Aggregate Expenditures (AE) 1,200 1,100 1,000 900 800 700 600 500 400 300 200 100 0 Incorrect 5 45 Y=AE AE=C+4₁₂ AE-C+6 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 Income (Y) о 6 47 8 7 * 8 144 6 O [ [e[°[_[༩[༨/+-/ 40 11:28 PM 11/6/2020 Insert 22135 A backrolics < Question 7 of 75 > Aggregate I 500 400 300 200 1001 0 45 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 Income (Y) 2.5. 0.4. 0.6. 5. Revealed Answer Incorrect о D 996 5 6 8 7 R T Y U * i E 144 P0 +11 41 8 9 0 P 4 Revealed Answer 11 8 11:28 PM 11/6/2020 Insert DIE SC backspace
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- From March 2020 to March 2021, the US enacted three fiscal packages to stimulate the economy and support businesses and households following the dislocations of COVID19. The rationale for these temporary payments was based on the Keynesian consumption function, according to which an increase in income increases consumption spending and boosts the economy. The data shown in the chart on the next page for disposable income, with and without the stimulus payments, and personal consumption expenditures. While disposable income clearly rises substantially when the stimulus payments are included, personal consumption expenditures follows a different path, mimicking disposable income without the stimulus payments. Use economic theory to explain what is going on here, Billions of Dollars 22,000 Disposable Personal Income less Economic Impact Payments Disposable Personal Income with Economic impact Payments 20,000 Personal Consumption Expenditures 18,000 16,000 14,000 12,000 01 04 07 10 01 04…1. According to Keynes, what is the most important determinant of (or influence on) the level of Consumer Spending households undertake in a time period? 2. Use the following Consumption function data to answer the questions below: Real Disposable Income Consumption Saving MPC MPS $100 $150 $200 $200 $300 $250 $400 $300 $500 $350 A. What is Saving if Real Disposable Income = $400. What is Saving if Yd = 500? B. What is the marginal propensity to consume (MPC)? C. What is the marginal propensity to save (MPS)? D. What is the break-even income (level of income at which Saving = 0)? E. What is the mathematical relation between the MPC and the MPS? 3. Suppose most business executives expect a slowdown in the economy (slower sales…15. If the MPC is 3/4, what is the government spending multiplier in the simple Keynesian model?
- Consider an economy of a nation that has the following aggregate expenditure. 1300- 1040- 780- 520- AE 260 Y = AE 260 390 520 650 780 9ło 1040 1170 1300 130 Real GDP Note: Please make sure your final answers are accurate to 2 decimal places. a) What is the value of the equilibrium national real GDP? Equilibrium = $0 b) What is the value of the multiplier? Multiplier = 0 c) If the autonomous consumption were to decrease by $520, what would be the new value of equilibrium real GDP? New equilibrium = S0 Aggregate expendituresThe chart below gives the data necessary to make a Keynesian cross diagram. Assume that the tax rate is 0.4 of national income, the MPC out of after-tax income is 0.9, investment is 58, government spending is 60, exports are 40, and imports are 0.1 of after-tax income. Alt Text: This chart contains the following columns: National Income, After-tax income, Consumption, I+G+X, Minus Imports, and Aggregate Expenditures. The National Income Column contains the following values for each of the following rows: 100, 200, 300, 400, 500, and 600. The only other value provided is the consumption, 104, for national income, 100. What is the equilibrium level of national income for this economy? A) Y=200 B) Y=400 C) Y=300 D) Y=500The chart below gives the data necessary to make a Keynesian cross diagram. Assume that the tax rate is 0.4 of national income, the MPC out of after-tax income is 0.9, investment is 58, government spending is 60, exports are 40, and imports are 0.1 of after-tax income. Alt Text: This chart contains the following columns: National Income, After-tax income, Consumption, I+G+X, Minus Imports, and Aggregate Expenditures. The National Income Column contains the following values for each of the following rows: 100, 200, 300, 400, 500, and 600. The only other value provided is the consumption, 104, for national income, 100. What does consumption equal when income equals 600? Group of answer choices a. 324 b. 374 c. 540 d. 104
- What happens in the simple Keynesian model if households expect lower income in the future and decide to save more today? Adjust the graph and answer the question. Assume that investment varies directly with aggregate income. Aggregate expenditure (in billions of dollars) 10 9 8 7 5 4 3 2 1 0 0 1 2 3 4 5 6 7 Aggregate income (in billions of dollars) 8 9 AE = AI C+1 10The chart below gives the data necessary to make a Keynesian cross diagram. Assume that the tax rate is 0.4 of national income, the MPC out of after-tax income is 0.9, investment is 58, government spending is 60, exports are 40, and imports are 0.1 of after-tax income. National Income Minus After-tax ConsumptionI+G+X income Aggregate Expenditures Imports 100 104 200 300 400 500 600 What does consumption equal when income equals 600?1. Graphing the consumption function from the MPC Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.80. That is, if disposable income increases by $1, consumption increases by 80¢. Suppose further that last year disposable income in the economy was $400 billion and consumption was $350 billion. On the following graph, use the blue line (circle symbol) to plot this economy's consumption function based on these data. CONSUMPTION (Billions of dollars) 700 600 500 400 300 200 100 0 -100 0 200 400 500 600 DISPOSABLE INCOME (Billions of dollars) 100 300 700 800 From the preceding data, you know that the level of savings in the economy last year was $ economy is billion and the marginal propensity to save in this
- 1. Graphing the consumption function from the MPC Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.80. That is, if disposable income increases by $1, consumption increases by 80¢. Suppose further that last year disposable income in the economy was $500 billion and consumption was $450 billion. On the following graph, use the blue line (circle symbol) to plot this economy's consumption function based on these data. CONSUMPTION (Billions of dollars) 700 600 500 400 300 200 100 0 -100 0 200 300 400 500 600 700 DISPOSABLE INCOME (Billions of dollars) 100 800 O ? From the preceding data, you know that the level of savings in the economy last year was economy is billion and the marginal propensity to save in this Suppose that this year, disposable income is projected to be $700 billion. Based on your analysis, you would expect consumption to be $ billion and savings to be $ billion.The current state in the economy are as follows; Autonomous Consumption: 9000, Marginal Propensity to Consume: 0.4, Investment: 10000, Government Spending: 30000, Net Exports: 5000, Income Tax rate: 25%. The government wishes to conduct an injection into the economy to achieve a 45000 increase in national income. Calculated the current equilibrium income in the economy The government increases spending by 30000. Does this achieve the desired increase of 45000? How much should the government increase its spending to achieve the 45000 increase in national income (to the nearest whole number)? (Hint: consider the what the multiplier in this economy is)1. Graphing the consumption function from the MPC Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.50. That is, if disposable income increases by $1, consumption increases by 50¢. Suppose further that last year disposable income in the economy was $450 billion and consumption was $350 billion. On the following graph, use the blue line (circle symbol) to plot this economy's consumption function based on these data. CONSUMPTION (Billions of dollars) 700 600 500 400 300 200 100 0 -100 0 100 200 300 400 500 600 DISPOSABLE INCOME (Billions of dollars) 700 800 (?) From the preceding data, you know that the level of saving in the economy last year was $ economy is billion and the marginal propensity to save in this Suppose that this year, disposable income is projected to be $550 billion. Based on your analysis, you would expect consumption to be S billion and saving to be $ billion.