Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 25.A, Problem 5TY
(a)
To determine
Calculate the equilibrium level of GDP.
(b)
To determine
Check whether the savings is equal to investment.
(c)
To determine
Calculate the equilibrium level of GDP and savings.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Consumption function for a country; Let C = 100 + 0.75Y. Planned investments 1 = 200. In this case a) Find the
equilibrium national income. b) Find the multiplier coefficient and interpret the meaning it expresses. C) Find
the equilibrium consumption amount. d) Find the equilibrium saving amount. e) How much does the
equilibrium national income change if i 100? f) If C = 0.85, how would the equilibrium national income
change? Explain. g) If C = 0.85, how would the equilibrium saving amount change? Explain
In an economy with lump-sum taxes and no international trade, if the marginal propensity to consume is 0.8, which of the following is true?
A. When consumption increases by RM5, investment increases by a maximum of RM1.
B. When consumption increases by RM5, savings increase by a maximum of RM1.
C. When investment increases by RM1, income increases by a maximum of RM5.
D. When investment increases by RM1, consumption increases by a maximum of RM5.
6. You are given the following data concerning Freedonia, a leg-
endary country:
(1) Consumption function: C = 200 + 0.8Y
(2) Investment function: I = 100
(3) AE = C + I
(4) AE = Y
a. What is the marginal propensity to consume in Freedonia,
and what is the marginal propensity to save?
b. Graph equations (3) and (4) and solve for equilibrium
income.
C. Suppose equation (2) is changed to (2´) I = 110. What is
the new equilibrium level of income? By how much does
the $10 increase in planned investment change equilibrium
income? What is the value of the multiplier?
Chapter 25 Solutions
Economics: Principles & Policy
Knowledge Booster
Similar questions
- Use the information below to answer the following questions. Suppose that in China, investment is ¥190 billion, saving is ¥170 billion, government expenditure on goods and services is ¥195 billion, exports are V230 billion, and imports are *270 billion (Y is yuan, the currency of China). The government received billion in tax revenues. The government has a budget investment by and investment. equal to billion which is exerting a(n) the demand for loanable funds, which influence on the real interest ratearrow_forwardConsider the following is the economy of Country Z: C = 200 + 0.85Y I = 100 Answer the following questions: Calculate the equilibrium level of output algebraically using the saving-investment (S-I) approach. (b) What is the value of saving at the equilibrium output from part (a)? (c) Suppose the investment increases to 200. What is the new equilibrium level of output? Calculate the value using the multiplier approach.arrow_forwardQuestion 17 In early 2000, China was the fastest emerging economy in Asia. However, in recent years, China has indicated deteriorating growth beginning of 2020. Suppose consumption function for China is C = 250 +0.6(Y-T) and taxes are T = 15+0.05Y, meanwhile investment is 250, government outlays are 400, and net - export is 300. a) What is the multiplier value for China? b) Suppose China's investment has dropped to 200, government outlays received deduction from the budget by 25% and other components are ceteris paribus. Calculate the national equilibrium new national income equilibrium. c) From the changes that happened in (b) China has reaccelerated export and import activities. This sector has contributed another $100 for net-export, meanwhile other components are ceteris paribus. Calculate national income equilibrium using multiplier approaches.arrow_forward
- From the information above, calculate the level of consumption and saving that occurs at the equilibrium level of income.arrow_forwardStudy the scenario and complete the question(s) that follow(s): Silesia You are provided with the following information about an imaginary economy called Silesia. Use the information provided in the table to answer the questions below. Government expenditure 400 Exports 250 Autonomous imports 50 Autonomous consumption 150 Investment Expenditure 300 Full-employment output 2040 Marginal propensity to consume 0.75 Marginal propensity to import 0.15 Таx rate 0.25 5.1 Derive and calculate the consumption function for the data provided. Show all formulas and calculations used. 5.2 Calculate autonomous spending. Show all formulas and calculations used. 5.3 Calculate the multiplier. Show all formulas and calculations used. Round off your final answer to 1 decimal. 5.4 Calculate the equilibrium level of income, using the values calculated in 5.2 and 5.3 above. Show all formulas and calculations used. 5.5 Calculate the government surplus or deficit at the equilibrium level of income. Show all…arrow_forwarda. Suppose the government increases both taxes (7) and government purchases (G) by equal amounts. Assuming income (Y) is fixed by the factors of production, the change in national saving (AS) will be (MPC-1) * AT. (1-MPC) x AT. b. The larger is the MPC (the closer it is to 1), the will be the increase in the interest rate. will be the decline in investment, and thearrow_forward
- Consider a small economy that is closed to trade, so that its net exports are zero. Suppose that the economy has the following consumption function, where C is consumption, Y is income (real GDP), IP is planned investment, G is government purchases, and T is taxes:C = $40 billion+0.5×(Y – T) Suppose G=$115 billion, IP=$50 billion, and T=$10 billion.Given the consumption function and the fact that, in a closed economy, planned expenditure can be calculated as Y=C+IP+G , the equilibrium income level is$ billion.Suppose that government purchases are increased by $100 billion. The new equilibrium level of income will be equal to$ billion.Based on the effect of the change in government purchases on equilibrium income, you can tell that this economy's multiplier is equal to_________?arrow_forwardProblem 1: You are given the following model for the economy of a country: Consumption function: C=2000+0,75-YDI Investment function: I=10500 Government spending: G = 12000 Tax function: T=200+0,4·Y - Disposable income: YD = Y -T+TR Transfer: 1000 a) What is the level of equilibrium output? b) What is the new equilibrium output if investment decreases by 2 000 units? c) How much does the government collect in taxes when the economy is in equilibrium? d) What is level of the government’s budget? e) Calculate the tax multiplier? f) Calculate consumption at the equilibrium output.arrow_forwardConsider the following information describing an economy with demand-determined output. There is no government or foreign trade. 1. the equilibrium condition is Y=C+/ 2. the marginal propensity to save = 0.20 3. the autonomous part of C is $66 4. investment is autonomous and equals $30 The equilibrium level of national income is A. $66. B. $384.25. 7 C. $450. D. $120. E. $480.arrow_forward
- The fundamental equations in an economy are given as: Consumption function C =200+0.8yd Investment function. I=300 Tax. T=120 Government expenditure. G=200 Exports. X=100 Imports M=0.05y Find the following. 1.The equilibrium level of income. 2.The net exports.arrow_forwardSuppose that country Y is identical to country Z, with the exception that country Y's population has a lower marginal propensity to consume than country Z. Initially, both countries have the same level of real GDP. The diagram shows the expenditure curve for country Y. Using the line drawing tool, draw the expenditure curve of country Z in Figure 1. Label your curve 'Ez'. Carefully follow the instructions above and only draw the required object. Figure 1 Planned Expenditure ($, trillions) Real GDP, Y ($, trillions) Ex Select ✓ Linearrow_forwardI'm just asking for question c, not a or barrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
