In the Keynesian cross model, assume that the consumption function is given by: C = 140+.75(Y-T); Planned investment is 300; government purchases are 400 and taxes are 500. (optional) a. Find the equation of planned expenditure as a function of income. Graph planned expenditure as a function of income. Make sure to label all curves and axes. b. What is the equilibrium level of income? Show your work. c. If government purchases increase to 450, what is the new equilibrium income? What is the multiplier for government purchases? Show your work.

In the Keynesian cross model, assume that the consumption function is given by: C = 140+.75(Y-T); Planned investment is 300; government purchases are 400 and taxes are 500. (optional) a. Find the equation of planned expenditure as a function of income. Graph planned expenditure as a function of income. Make sure to label all curves and axes. b. What is the equilibrium level of income? Show your work. c. If government purchases increase to 450, what is the new equilibrium income? What is the multiplier for government purchases? Show your work.

MACROECONOMICS

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ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 4TY

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Question

11. In the Keynesian cross model, assume that the consumption function is given by:
C = 140 +.75(Y-T); Planned investment is 300; government purchases are 400
and taxes are 500. (optional)
a. Find the equation of planned expenditure as a function of income. Graph planned
expenditure as a function of income. Make sure to label all curves and axes.
b. What is the equilibrium level of income? Show your work.
c. If government purchases increase to 450, what is the new equilibrium income?
What is the multiplier for government purchases? Show your work.
d.
What level of government purchases is needed to achieve an income of 3,400?
(Taxes remain at 500.) Show your work.
e. What level of taxes is needed to achieve an income of 3,400? (Government
purchases remain at 400.) Show your work.

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