(a) Suppose in a simple Keynesian economy, planned consumption function is given by C=250+0.65(Y-T). Planned investment, government purchases, taxes are $100 million, $100 million and $150 million respectively.What is MPC, MPS and autonomous consumptionDerive the saving function.What is the equilibrium level of income? Y= AD=C+I+GIf government purchases increase to $150 million, what is the new equilibrium level of income?What level of government purchases is needed to achieve an income of $2000 million?From question e) you get the newly government purchase. Now find out the multiplier valueWhat is the amount of shift in AD curve? [Use the multiplier value from e)] (b) In a self-regulating economy “X”, labor supply is 40 million but labor demand is 10 million.What will happen in goods and service market simultaneously? Explain this situation with relevant graph.Based on your findings in a) is it denoting long run equilibrium? If not, will the economy be able to restore it? Explain with suitable graph. (c) Suppose the economy is in a recessionary gap. (the economy is not self-regulating and consider upward sloping SRAS) If government spending increases by $30,000 but private investment reduces by $25,000 at the same time, will increase in government purchase lead the economy to long run equilibrium in goods and service market? Why or why not? Explain with AD-AS graph.

Note: Since, you've posted question with multiple sub-parts, we will solve the first the first three…

Answered: Suppose in a simple Keynesian economy,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Question

(a) Suppose in a simple Keynesian economy, planned consumption function is given by C=250+0.65(Y-T). Planned investment, government purchases, taxes are $100 million, $100 million and $150 million respectively.

What is MPC, MPS and autonomous consumption
Derive the saving function.
What is the equilibrium level of income? Y= AD=C+I+G
If government purchases increase to $150 million, what is the new equilibrium level of income?
What level of government purchases is needed to achieve an income of $2000 million?
From question e) you get the newly government purchase. Now find out the multiplier value
What is the amount of shift in AD curve? [Use the multiplier value from e)]

(b) In a self-regulating economy “X”, labor supply is 40 million but labor demand is 10 million.

What will happen in goods and service market simultaneously? Explain this situation with relevant graph.
Based on your findings in a) is it denoting long run equilibrium? If not, will the economy be able to restore it? Explain with suitable graph.

(c) Suppose the economy is in a recessionary gap. (the economy is not self-regulating and consider upward sloping SRAS) If government spending increases by $30,000 but private investment reduces by $25,000 at the same time, will increase in government purchase lead the economy to long run equilibrium in goods and service market? Why or why not? Explain with AD-AS graph.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

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.

Similar questions