Given the following variables in the open economy aggregate expenditure model, autonomous consumption (C0) 200, autonomous investment (10) = 200, government spending (GO) = 100, export spending (X0) = 100,autonomous import spending (MO) = 100, taxes (TP) = 0, marginal propensity to consume (c1) = 0.8, marginalpropensity to invest (i1) = 0.1, and marginal propensity to import (m1) = 0.15, a. Calculate the equilibrium level ofincome for the open economy aggregate expenditure model. b. Determine the value of the open economy expendituremultiplier. c. If there is an increase in autonomous import expenditure from 100 to 200 resulting from an increase in thecurrency exchange rate, calculate the new equilibrium level of income and the value of the multiplier. d. Compared withthe original equilibrium in part a, if the government decides to impose taxes (TP) of 100, calculate the new equilibriumlevel of income. e. Find the value of the multiplier and the corresponding equilibrium income if tax is specified as100+ 0.1 Hint: Remember that consumption has an autonomous component and is a function of disposableincome, Yd, where Yd = Y TP.

Approach to solving the question: Understand the Model:The open economy model incorporates the…

Answered: Given the following variables in the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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…
The marginal propensity to consume is defined as: Question 64 options: the ratio of change in consumption on both domestic and foreign items to the change in income average consumption as a proportion of income the ratio of the change in consumption on domestic items to the change in income the change in consumption on domestic items multiplied by the change in income the change in consumption on domestic and foreign items multiplied by the change in income
Our closed economy has a production function Y = A•F(K,LxE), where Y, K, L, E & A all have their usual meanings as per our lectures & course textbook. Also, this production function exhibits all the usual mathematical/economic properties we usually assume: positive marginal products, diminishing marginal products, complementarity between K & (LxE), and constant returns to scale. The aggregate consumption function depends negatively on the real interest rate, the government budget is balanced initially & the economy is in both a long-run equilibrium and steady state initially. The population growth rate is 2% per year, capital depreciates at a rate of 3% per year, the saving rate is 25% and technology is constant. Suppose the level of labour effectiveness (E) suddenly permanently rises by 10%. a) Use the long-run classical model to determine the qualitative impact of this shock on the long-run equilibrium levels of real output, consumption, investment, real interest…
Our closed economy has a production function Y = A•F(K,LxE), where Y, K, L, E & A all have their usual meanings as per our lectures & course textbook. Also, this production function exhibits all the usual mathematical/economic properties we usually assume: positive marginal products, diminishing marginal products, complementarity between K & (LxE), and constant returns to scale. The aggregate consumption function depends negatively on the real interest rate, the government budget is balanced initially & the economy is in both a long-run equilibrium and steady state initially. The population growth rate is 2% per year, capital depreciates at a rate of 3% per year, the saving rate is 25% and technology is constant. Suppose the level of labour effectiveness (E) suddenly permanently rises by 10%. a) Use the long-run classical model to determine the qualitative impact of this shock on the long-run equilibrium levels of real output, consumption, investment, real interest…
In the aggregate expenditures model, all are true except: a)the price level is shown b)the equilibrium level of GDP can be determined c)the relationship between spending and production is presented d)the actual GDP can be compared to potential GDP
C= 26 +0.75Y = 60 X = 24 M = 10 (Advanced analysis) The equations give information for a private open economy. The letters Y, C, I, X, and M stand for GDP, consumption, gross investment, exports, and imports, respectively. Figures are in billions of dollars. The multiplier for the economy is 4.6. 3.33. 5.0. 4.0.
TRUE/FALSE When we add the marginal propensity to import to our model, the spending multiplier falls. In fact, the higher the marginal propensity to import, the smaller the spending multiplier, all else constant.
the closed economy of temasik has the following characteristics: autonomous consumption is rm 100 *marginal propensity to consume is 0.9 * investment expenditure is rm 460 *taxes are constant and equal to rm 400 *goverment purchases of goods and services is rm400 a)find the equilibrium level of real GDP b)suppose the goverment cuts its purchases of goods and services to rm 300.using the multiplier formula,calculate the change in real GDP. c)suppose the goverment maintains its purcase of rm400 worth of goods and services and instead cuts taxes to rm 300. using the multiplier formula,calculate the change in real GDP.
Consider the intertemporal budget constraint in the context of the two-period life-cycle model. When there is no tax on interest income, the slope of the intertemporal budget constraint is -1.2. When there is a percentage tax interest income, the slope of the intertemporal budget constraint becomes -1.15. What is the percentage tax rate on interest income
A reduction in the marginal propensity to import will cause A) the multiplier to increase and a given change in government spending (G) to have a larger effect on domestic output. B) the multiplier to increase and a given change in government spending (G) to have a smaller effect on domestic output. C) the multiplier to decrease and a given change in government spending (G) to have a larger effect on domestic output. D) the multiplier to decrease and a given change in government spending (G) to have a smaller effect on domestic output.
Q.1.13 An increase in the marginal propensity to consume: (1) Shift the aggregate spending function (A) upwards; (2) Shifts the aggregate spending function (A) downwards; (3) Increases the slope of the aggregate spending function (A); (4) Decreases the slope of the aggregate spending function.
Question 1: In the case of a 2 sector economy model, when the income increases from RM 400 mil to RM 450 million, consumption increases from 200 million to 230 million. The autonomous investment is RM100 million. Assume autonomous consumption is 1.1) Calculate the value of MPC 1.2) Calculate the value of MPS 1.3) Derive consumption function, if the autonomous consumption is RM100 million 1.4) Construct saving function, if the autonomous saving is RM100 million Question 2: Given the following information C=200 + 0.75Y I=100 G=50 T=100 X=100 M=50 Find the equilibrium income by using the formula of Y = C + I + G + (X – M) Question 3: The following information is about monetary items for the country. ITEMS RM(Million) Paper money 5500 Negotiable certificate of deposit 3600 Fixed & savings deposits in other banking institutions 7900 Fixed & savings deposits in commercial banks 15000 Demand deposits 9000 Bank Negara Certificates 12000…

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