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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Question
Chapter 28, Problem 2TY
To determine
The equilibrium of the given economy where the taxes are varying with income.
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Need help with this, please show me where to plot the two points on the graph as well. Thanks!
Given the information below, answer the questions that follow.
C = $40 + 0.75Y I = $30 G = $40 X – M = $10
a) What is the equilibrium GDP? Explain why $550 is not the equilibrium.
b) What is the marginal propensity to consume (MPC) in this question? (Explain)
c) What is the multiplier in this question and explain the significance of the multiplier?
Using the table below to answer the following questions. Assume all values represent trillions of dollars.
Construct a graph of the Aggregate planned expenditure
What is the equilibrium expenditure?
Explain what happens at a real GDP of $4 trillion dollars. (Note the aggregate
expenditures and the effects on inventories)
What are your total autonomous expenditures?
What is the marginal propensity to consume?
Ignoring imports and income taxes, what is the multiplier?
If investment increases by $1.5 trillion, what is the change in real GDP?
Chapter 28 Solutions
Economics: Principles and Policy (MindTap Course List)
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- Use both numerical and graphical methods to find the multiplier effect of the following shift in the consumption function in an economy in which investment is always $220, government purchases are always $100, and net exports are always 2-40. (Hint: What is the marginal propensity to consume?)arrow_forwardThe following table shows consumption (C), investment spending (I), and government purchases (G), for some hypothetical economy at several levels of income (reported in billions of dollars of real GDP). Assume that in this economy, income is taxed at a rate of 25%, base consumption is $25 billion, and that the marginal propensity to consume (MPC) is 0.333, or 1/3. Further assume that this economy is closed, that is, there is no international trade and so net exports are always equal to zero. Use the given information to fill in disposable income, consumption, and planned expenditures in the following table. Income: Real GDP Disposable (After Tax) Income C Ip G Planned Expenditures (Billions of dollars) (Billions of dollars) (Billions of dollars) (Billions of dollars) (Billions of dollars) (Billions of dollars) 0 0 25 150 50 100 150 50 200 150 50 300 150 50 400 150 50 500 150 50…arrow_forwardPlease answer the following questions based on the given information: a = 50, MPC -0.8, 1-100, G-200, EX-100, IM- 50 (where a is the autonomous spending. MPC is the marginal propensity to consume, I is the investment, G is the government spending, EX is the export, and IM is the import) 1) What is the equilibrium level of output (income), Ye, in this economy? 50 Agg Expenditure C+I+G+NX- M+I+G+NX p Agg Expenditure Income (Real GOP) 2) Suppose the Ye (actual GDP) that you derived from the previous question is lower than the potential GDP level. Calculate the G' value to find how much the government spending is required to reach the potential GDP at 2,400? G 48 degree P" => ↑ C++G+Nxx Aus GDP AET-CH-GNX AEZ-C+I+G+NX Y, GDP)arrow_forward
- Suppose that the economy is depicted by the following relationship: Expenditures =C+I+G+X where: C = $100+ 0.90 (Y-T) G = $600 T = $600 I = $100 X = $50 The economy is in equilibrium at a level of real GDP or income of $ Now suppose that the government decided to increase taxes by $300. What is the new equilibrium level of GDP or income? $arrow_forwardConsider the hypothetical country of Kejimkujik. Suppose that national income in Kejimkujik is $300 billion, households pay $100 billion in taxes, household consumption is equal to $160 billion, and the marginal propensity to consume (MPC) is 0.6. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. Consumption Function050100150200250300350400450500500450400350300250200150100500CONSUMPTION (Billions of dollars)DISPOSABLE INCOME (Billions of dollars) Suppose now that Kejimkujik’s national income increases to $330 billion. Assuming the amount paid in taxes is fixed at $100 billion and that MPC = 0.6, what is the new amount of household consumption? $148 billion $219.4 billion $220.6 billion $178 billionarrow_forwardThe following table shows consumption (C), investment spending (I), and government purchases (G), for some hypothetical economy at several levels of income (reported in billions of dollars of real GDP). Assume that in this economy, income is taxed at a rate of 25%, base consumption is $50 billion, and that the marginal propensity to consume (MPC) is 0.667, or 2/3. Further assume that this economy is closed, that is, there is no international trade and so net exports are always equal to zero. Use the given information to fill in disposable income, consumption, and planned expenditures in the following table. Income: Real GDP Disposable (After Tax) Income C Ip G Planned Expenditures (Billions of dollars) (Billions of dollars) (Billions of dollars) (Billions of dollars) (Billions of dollars) (Billions of dollars) 0 0 50 100 50 100 100 50 200 100 50 300 100 50 400 100 50 500 100 50…arrow_forward
- a) Given the following values of consumption, investment, and government purchases (all in (in millions of $) at three point of Real GDP, calculate (in millions of $) and plot the Total Expenditures curve. Real GDP Consumption Investment Government Purchases Total Expenditure Q1 600 50 200 Q2 750 80 400 Q3 1000 100 600 b) On the same diagram, draw the TP curve. Explain the reason behind the shape and position of the TP curve. c) Given, optimal inventory is $500 million worth of goods, TE = $2000 million worth of goods and TP = $2300 million worth of goods, how will the economy adjust to achieve equilibrium? d) Assume the economy is in recessionary gap. On the same diagram you in part a), show this case. If the government intervenes using…arrow_forwardConsider two closed economies that are identical except for their marginal propensity to consume (MPC). Each economy is currently in equilibrium with real GDP and total expenditure equal to $100 billion, as shown by the black points on the following two graphs. Neither economy has taxes that change with income. The grey lines show the 45-degree line on each graph. The first economy's MPC is 0.5. Therefore, its initial total expenditure line has a slope of 0.5 and passes through the point (100, 100). The second economy's MPC is 0.70. Therefore, its initial total expenditure line has a slope of 0.70 and passes through the point (100, 100). Now, suppose there is an increase of $30 billion in investment in each economy. Place a green line (triangle symbol) on each of the previous graphs to indicate the new total expenditure line for each economy. Then place a black point (plus symbol) on each graph showing the new level of equilibrium output. (Hint: You can see the slope and vertical…arrow_forwardConsider two closed economies that are identical except for their marginal propensity to consume (MPC). Each economy is currently in equilibrium with real GDP and total expenditure equal to $100 billion, as shown by the black points on the following two graphs. Neither economy has taxes that change with income. The grey lines show the 45-degree line on each graph. The first economy's MPC is 0.5. Therefore, its initial total expenditure line has a slope of 0.5 and passes through the point (100, 100). The second economy's MPC is 0.70. Therefore, its initial total expenditure line has a slope of 0.70 and passes through the point (100, 100). Now, suppose there is an increase of $30 billion in investment in each economy. Place a green line (triangle symbol) on each of the previous graphs to indicate the new total expenditure line for each economy. Then place a black point (plus symbol) on each graph showing the new level of equilibrium output.arrow_forward
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