Problem 4. In a closed economy, consumption is C = 100++0.8Yp– 50r, taxes T = 200 and transfers are530 – 10,000r. Output is Y = 1000. Public debt is zero.TR= 100. The investment function is I =(A) Find government spending G if the government budget is balanced.(B) Derive the total savings function S(r). Do savings depend on the interest rate? If yes, positively ornegatively? Why? Give economic reasoning.(C) Find the equilibrium on the loanable funds market: find, at equilibrium, r, S and I.(D) The government raises its spending by 150 and finances this by borrowing. Find the new equilibrium.Does the crowding out effect takes place? If yes, describe it in detail: what crowds out what. If not,explain why.(E) Instead, the government raises its spending by the same 150 and finances this by raising taxes byan equal amount (to keep the budget balanced). Find the new equilibrium. Does the crowding outeffect takes place? If yes, describe it in detail: what crowds out what. If not, explain why.(F) Draw the loanable funds market diagram. Show the initial equilibrium and the two equilibria underthe two fiscal policies.

C=100+0.8YD-50r T=200 TR=100 I=530-10,000r Y=0 Public Debt=0

Answered: Problem 4. In a closed economy,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Consider country D, which is a closed economy. Suppose that D’s investment is 100, disposable income is 500 and the consumption 550. Answer D’s public saving and if government spending G is more than, less than or equal to the tax T. You need to use I = S, S = Private saving + Public saving The definition of private saving Then, you can answer how much is the public saving. Regarding G, remember the definition of public saving. Public saving: G:
1) Following is information for the economy of Donut. All units are million dollars. Their autonomous consumption is $500, and the marginal propensity to consume is 0.6. Investment spending is constant at $300, and government expenditure is constant at $200. Exports are constant at $100 and imports are constant at $230. Net taxes are constant at $100. Calculate and state your answers for the following questions. A.. What is the value of private saving in this economy when the real GDP is $500? B..What is the value of autonomous aggregate expenditure i.e. AE0? C..What is the size of the multiplier in this economy? D... What is the value of aggregate planned expenditure when real GDP is $1000?
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Problems 3. Draw the graph and label correctly Assume a simple closed economy, with an mpc equal to 0.75. The government has passed a balanced budget amendment. The economy goes into a recession, so the government increases government spending by 40 million to try to expand the economy. a. Calculate the change in output (AY) from the increase in government spending (AG). b. The balanced budget amendment requires the government to also raise taxes by 40 million. Calculate change in output (AY) from the tax hike.
Suppose government provides tax rebate to small business on their business-related expenditure. Assuming no change in government budgetary position, this policy is likely to have a positive effect on household (or private) saving in the economy (Hint: think about the effect of this policy in Loanable Funds Market) Is this statement true, false or uncertain? Please provide your explaination.
Why is it important to budget? (Note: You may discuss it in personal level to government level).
Suppose GDP equals $30 trillion, consumption equals $20 trillion, the government spends $4 trillion and has a budget deficit of $900 billion. Required: Find net taxes and public saving
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A budget expresses management's objectives and goals in financial terms. It can be used for all of the following except: a. to establish standards or targets for dollar expenditures. b. to provide a standard against which expenditures can bemeasured. c. to establish flexible spending parameters for controllable expenses. d. to establish limits for expenditure, and thus to restrict the amounts that can be spent for particular purposes..
Suppose that in a closed economy, GDP is $15 trillion, Consumption is $6 trillion, Government Purchases are $5 trillion, and there is a $500 billion budget deficit. 6. What are taxes? 7. What is public saving? 8. What is private saving? 9. What is national saving? 10. What is investment? If then taxes are raised by $500 billion dollars, and the public pays for those taxes entirely by reducing their consumption (no change to their savings), after this tax increase, 11. What is consumption? 12. What are taxes? 13. What is public saving? 14. What is private saving? 15. What is national saving? 16. What is investment?
For an economy, the following information is given to you. C= 0.7(1 -t)Y I 300-0.02r M"/P= 2+0.2Y – 0,3r where C is consumption t is proportion income tax rate, I is investment, M" is money demand, P is price, Y is income (output) and r is real interest rate. If Government expenditure (G) is 479 , tax rate (t) is 14%, price level ( P) is 17, and nominal money supply is 980, the IS-LM equilibrium output is (two decimal points).

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