Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 10, Problem 6QP
To determine
The cut in income tax rate and the consumption.
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Explain the relationship between consumption and saving in the Keynesian model.
In the simple Keynesian consumption function C = 84 +0.83*Y^d, what is the marginal propensity to consume (MPC) equal to?
What happens in the simple Keynesian model if households expect lower income in the future and decide to save more today?
Adjust the graph and answer the question.
Assume that investment varies directly with aggregate income.
Aggregate expenditure (in billions of dollars)
10
9
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5
4
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2
1
0
0
1 2
3
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7
Aggregate income (in billions of dollars)
8
9
AE = AI
C+1
10
Chapter 10 Solutions
Macroeconomics
Ch. 10.1 - Prob. 1STCh. 10.1 - Prob. 2STCh. 10.1 - Prob. 3STCh. 10.2 - Prob. 1STCh. 10.2 - Prob. 2STCh. 10.2 - Prob. 3STCh. 10.3 - Prob. 1STCh. 10.3 - Prob. 2STCh. 10.3 - Prob. 3STCh. 10.4 - Prob. 1ST
Ch. 10.4 - Prob. 2STCh. 10 - Prob. 1QPCh. 10 - Prob. 2QPCh. 10 - Prob. 3QPCh. 10 - Prob. 4QPCh. 10 - Prob. 5QPCh. 10 - Prob. 6QPCh. 10 - Prob. 7QPCh. 10 - Prob. 8QPCh. 10 - Prob. 9QPCh. 10 - Prob. 10QPCh. 10 - Prob. 11QPCh. 10 - Prob. 12QPCh. 10 - Prob. 13QPCh. 10 - Prob. 14QPCh. 10 - Prob. 15QPCh. 10 - Prob. 16QPCh. 10 - Prob. 17QPCh. 10 - Prob. 18QPCh. 10 - Prob. 19QPCh. 10 - Prob. 20QPCh. 10 - Explain how to derive a total expenditures (TE)...Ch. 10 - Prob. 22QPCh. 10 - Prob. 23QPCh. 10 - Prob. 24QPCh. 10 - Prob. 25QPCh. 10 - Prob. 1WNGCh. 10 - Prob. 2WNGCh. 10 - Prob. 3WNGCh. 10 - Prob. 4WNGCh. 10 - Prob. 5WNGCh. 10 - Prob. 6WNGCh. 10 - Prob. 7WNGCh. 10 - Prob. 8WNG
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- If the price level increases, what happens to the consumption function? Why?arrow_forwardIn the Keynesian cross model, assume that the consumption function is given by C = 100 + 0.75(Y - T). If government spending increases by AG = 100, what is the increase in output? How does your answer change when the spending increase is financed by an equal increase in taxes?arrow_forwardExplain the Keynesian, saving-consumption relationship, and interpret consumption and saving functions on a single graph.arrow_forward
- If the Keynesian consumption function is C = 100 +0.75Y4 and there is no investment then, when disposable income is 500, what is the average propensity to consume? Round your answer to 2 decimal places e.g. 2.22arrow_forwardWhich of the following statements about the Keynesian framework are accurate? a)Keynes posited a linear Consumption function C=Ca + mpcYd, where C is total desired consumption spending, Ca is consumption spending independent of income and Yd is disposable income and mpc is marginal propensity to consume b) In the C=Ca +mpcYd the Ca is the vertical axis intercept parameter, and mpc is the slope parameter. c) Keynes also posited that Investment spending was a function of expectations and the interest rate. d) In the Keynesian investment function the firm's estimated profitability of potential investment projects were determined by expectations of future sales and costs. e) Businesses would invest in those projects whose estimated profitability was greater than the market rate of interest. f) If the firms don't have the cash, they will borrow funds and earn the difference between the rate of return on the project and the lower market rate of interest. If they have more cash than needed…arrow_forwardQ.1.7 In the Keynesian macroeconomic model, the equation for the savings function is given as: S = -420 + 1/4Y. Based on this information, which of the following statements is correct? (1) The marginal propensity to consume is 1/4; (2) The marginal propensity to save is -420;arrow_forward
- In an economy, marginal propensity to consume (MPC) is 0.75 where Keynesian model works. Now, if government increases both its expenditure and taxes by 1000, then Income increases by 4000; Income increases by 3000; Income increases by 1000; Income do not change?arrow_forwardConsider the impact of thriftiness in the Keynesian Cross Model. Suppose the consumption function is C=C¯+c(Y−T¯) where C¯ is called autonomous consumption and cc is the marginal propensity to consume. a) What happens to equilibrium income when society becomes more thrifty (i.e., a decline in C¯) b) Your answer to (a) is called the Paradox of Thrift. Explain why consuming less (and saving more) is not a good thing in this model. (Hint: a decrease in consumption wouldn’t be so bad in our classical model of Chapter 3 because we assumed national savings equaled investment in the long run.)arrow_forwardIn the Keynesian cross model, assume that the consumption function is given by C = 20 + 0.8(Y- T). Planned investment is 200; government purchases and taxes are both 400. There is no foreign trade. An economist has claimed that the full employment level of output is 2,400. How much should the government expenditure or taxes rise or fall to achieve full employment?arrow_forward
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