Economics: Principles and Policy (MindTap Course List)
13th Edition
ISBN: 9781305280595
Author: William J. Baumol, Alan S. Blinder
Publisher: Cengage Learning
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Chapter 26, Problem 6TY
To determine
Calculate the equilibrium level of
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1. Use the following information from a fictional economy:
Consumption, C = 250 + 0.8 Yd
Investment, I = 200
Government Spending, G = 100
Taxes, T = 0.2 Y
Net Exports, NX = 50 - 0.4 Y
Disposable Income, Yd = Y-T
%3D
Real GDP = Y
%3D
(a) What is equilibrium Real GDP (Y) for this economy?
(b) What is equilibrium C for this economy?
(c) What is equilibrium NX for this economy?
(d) What is equilibrium T for this economy?
(e) What is equilibrium YD for this economy?
6. Consider the following economy: C= 100+0.8Y, I = 200, G = 125, NX= 75. (a) Compute the
equilibrium GDP
(b) If the government decides to increase the spending by $30, how much will be the impact
on equilibrium GDP? (Hint: Spending multiplier = 1/1 - MPC)
1. (a) The following equations describe an economy:
C-100+ 0.75Yd
I-50-25r
T-G-50
Where C is aggregate consumption, Y is disposable income, I is aggregate investment. I is
taxes, G is government purchases and r is the rate of interest. Derive the IS curve for the
economy. Show the area of excess demand and excess supply in the goods market.
(b) Draw the graph and explain the derivation of IS curve.
2. (a) Given the following data about the monetary sector of the economy:
Ma -0.4Y-80r
M₁ - 1200 million
Where, Ma is demand for money, Y is the level of income, r is the rate of interest and
M, is the supply of money.
Derive the equation for LM curve and give the economic interpretation of this curve.
Show the excess demand and excess supply in the money market.
(b) Draw the graph and explain the derivation of LM curve.
3. Consider the following economy:
C-100+ 0.8Yd
I-50-25,
G-T-50
M'
P
-200
M₁-Y-25r
1. Calculate the IS and LM curves.
2. Calculate the equilibrium levels of output (national…
Chapter 26 Solutions
Economics: Principles and Policy (MindTap Course List)
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Similar questions
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- The aggregate demand function: yad =C+1+G₁ = 500+ 0.75Y is plotted on the graph to the right. The graph also shows the 45° line where aggregate output Y equals aggregate demand yad for all points. What happens to aggregate output if government spending rises by 100? The equilibrium level of output rises by $ billion. (Round your response to the nearest billion.) Consumption Expenditure, C ($ billions) 3000- 2800- 2600- 2400- 2200- 2000- 1800- 1600- 1400- 1200- 1000- 800- 600- 400- 200- 0- 0 yad =C+I+G₁ = 500 +0.75Y Y = yad 45° 400 800 1200 1600 2000 2400 2800 Disposable Income ($ billions)arrow_forward1. Draw a graph to illustrate the desired aggregate expenditures of an economy whose participants have the following spending plans: C= $10 + 0.8Y I= $20 G= $30 X-M = $10 (a) What is the value of equilibrium output? (b) Assuming that the full-employment level of output is $300, what kind of gap exists and how large is it? Identify the gap on the graph. (c) How much are consumers saving at full employment?arrow_forwardPlease give a detailed solution with an explanation.arrow_forward
- 3. The consumption function Suppose that national income in a country is $30 billion, taxes paid by households is $10 billion, household consumption is $18 billion, and the marginal propensity to consume (MPC) is 0.8. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. CONSUMPTION (Billions of dollars) 50 45 40 35 30 25 20 15 10 5 0 0 5 + + + 10 15 20 25 30 35 40 DISPOSABLE INCOME (Billions of dollars) O $25.2 billion $26.8 billion $24.4 billion 45 0.8, Suppose now that country's national income increases to $34 billion. Assuming the amount paid in taxes is fixed at $10 billion and that MPC = what will be the new household consumption? $21.2 billion 50 Consumption Function (?)arrow_forward6 If the marginal propensity to consume (MPC) is 0.40, the expenditure multiplier will be equal to _______ . (Enter your answer using ONE decimal place)arrow_forward不 Fill in the missing values in the following table. Assume that the value of the MPC does not change as real GDP changes and that there are zero taxes. (Enter all values as whole numbers.) Real GDP () Consumption (C) Planned Investment (/) Government Purchases (G) Net Exports (NX) $15,000 $10,500 $1,500 $1,300 - $375 $16,000 $11,200 $1,500 1,300 - $375 $17,000 $1,500 1,300 - $375 $18,000 $1,500 1,300 - $375 $19,000 $ $1,500 1,300 - $375arrow_forward
- (Use for a and b)Suppose the interest on the debt was $700 billion. If interest is paid domestically, 90% will be spent domestically (the remainder is spent on foreign goods). If interest is paid to the foreign sector, only 10% is spent here (the remainder is spent in foreign countries). Every dollar collected in taxes to pay the interest causes domestic spending to fall 90 cents. The spending multiplier is 2. a) What is the net impact on GDP if all interest is paid domestically? b) What is the net impact on GDP if 20% of the interest is paid to the foreign sector? c)What are the desirable qualities of an efficient commodity money?arrow_forwardEconomics 1. Explain how each of the following changes would shift the aggregate expenditure function and the aggregate demand curve. a) An increase in government expenditures (G).arrow_forward52)Consider the following consumption function: C = 800 + 0.75 YD for the fictitious economy of Zapland. If the government increases taxes by $200 million, what is the change in GDP? Assume that there is no increase in the price level. Select one: a. -$800 million b. $600 million c. $800 million d. -$600 million e. -$300 millionarrow_forward
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