Use the Keynesian cross to predict the impact on equilibrium GDP of the following. In each case, state the direction of the change and give a formula for the size of the impact. (solve all the three cases) An increase in government purchases An increase in taxes Equal-sized increases in both government purchases and taxes
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Use the Keynesian cross to predict the impact on equilibrium
- An increase in government purchases
- An increase in taxes
- Equal-sized increases in both government purchases and taxes
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- THE AGGREGATE EXPENDITURE MODEL (IN THE SHORT RUN)YOU MUST SHOW YOUR CALCULATIONS IN THE SPACE BELOWFOR THE NEXT PROBLEM USE THE FOLLOWING FORMULA:CHANGE IN GDP = [ 1 / (1-MPC) ] * CHANGE IN GInitially, the economy is producing $13 trillion in goods and services and the government is spending $2 trillion.Then the government decides to increase its spending to $2.7 trillion. Compute the new equilibrium level of output. Assume that the marginal propensity to consume is 0.7 (MPC=0.7).Expenditure, E EA E E E₁ Y₁ Y₂ Y₁₂ Actual Expenditure Planned Expenditure Income, Output, Y 5. (Exhibit: Keynesian Cross) In this graph, the equilibrium levels of income and expenditure are: A) Y₁ and E₁ B) Y2 and E2 C) Y3 and E3 D) Y3 and E4 Please indicate clearly (through highlighting, underlying, etc.) and hand-write clearly or type-in an ar the following to receive full credit: A) Why is this response the right or wrong answer?Q3. Use the Keynesian cross model to predict the impact on equilibrium GDP of the following. In each case, state the direction of the change and give a formula for the size of the impact.a. An increase in government purchasesb. An increase in taxesc. Equal-sized increases in both government purchases and taxes
- a) About Country A, what is your estimate of the country's marginal propensity to consume (MPC) based on the following information on its GDP (Y) and the components thereof (in billion dollars) for two past years? Show calculation. Year 1 Year 2 c) GDP C I 11200 8000 2200 12000 8500 2400 G 800 880 The next few parts are about Country B, whose government plans to cut taxes by $24 billion as a measure to fight the current recession. The marginal propensity to consume (MPC) in Country B is known to be 34. There will be no crowding-out effect. e) NX 200 220 b) What is the initial effect (in billion dollars) of the tax cut on Country B's aggregate demand? (The "initial effect" here refers to the effect on AD after only the first round of increased spending.) What is the total effect of the tax cut on aggregate demand? Explain why it is different from the initial effect. d) How does the total effect of this $24 billion tax cut compare to the total effect of a $24 billion increase in…2b. Use the Keynesian cross to predict the impact on equilibrium GDP of equal-sized increases in both government purchases and taxes.Explain the effect of an increase in exports on the equilibrium GDP in the Keynesian income-expenditure model. In your answer, carefully show the new equilibrium and explain the adjustment to the new equilibrium.
- The 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?Use the Keynesian cross model to predict the impact of an increase in government purchases on equilibrium GDP. State the direction of the change and give a formula for the size of the impact. An increase in taxes shifts the planned expenditure function downward. The change in income is given by AY= ΔΥ= -MPC 1-MPC An increase taxes shifts the planned expenditure function upward. The change in income is given by -MPC 1-MPC AY= XAT An increase in taxes shifts the planned expenditure function inward. The change in income is given by AY= 1 1-MPC XAT 1 1-MPC The direction of the shift is undetermined without knowing the slope of the PE function. The change in income is given by XAT XATUse the Keynesian cross to predict the impact of the following on equilibrium income. Use dia- grams and explain your intuition. 1. An increase in government purchases. 2. An increase in taxes. 3. An equal increase in both government purchases and taxes.
- Question 3 of 16 Income and consumption changes for five people are shown in the table. Given this information, rank the marginal propensities to consume (MPC) for the five people from largest to smallest. Largest MPC Smallest MPC Answer Bank Bert Doug Eli Carter Al Name Income change Consumption change Al +$5,000+$5,000 +$3,000+$3,000 Bert +$2,500+$2,500 +$800+$800 Carter +$1,000+$1,000 +$800+$800 Doug −$2,500−$2,500 −$1,750−$1,750 Eli −$5,000−$5,000 −$2,000−$2,000Assume the following model of the expenditure sector: S=C+I+G+Nx TR=100 C=420+(4/5)YD I=160 G=180 Nx=-40 YD=Y+TR-TA TA=(1/6)Y If the government would like to increase the equilibrium level of output (Y) to the full employment level Y*=2,700, by how much should government purchases (G) be changed?What is income-expenditure equilibrium? Derive aggregate demand curve from income expenditure equilibrium when the price level is not changed.