MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
expand_more
expand_more
format_list_bulleted
Question
Chapter 9, Problem 1TY
To determine
To calculate: The increase in equilibrium
Expert Solution & Answer
Answer to Problem 1TY
The equilibrium level of GDP increases to $200 .
Explanation of Solution
According to the data given, the graph can be drawn as follows:
In this figure, GDP is measured on the horizontal axis while the consumption expenditure is on vertical axis. At point E1 the 45 degree line intersects with the plotted line of GDP and consumption expenditure combination, where both GDP and domestic expenditure are at $3,800. Therefore the equilibrium GDP is $3,800.
The consumption expenditure has changed as the investment increased to $260. Therefore it can be written as
| GDP | Consumption | Investment | Government purchases | Net export | Consumption Expenditure |
| 3,600 | 3,220 | 260 | 120 | 40 | 3,640 |
| 3,700 | 3,310 | 260 | 120 | 40 | 3,730 |
| 3,800 | 3,400 | 260 | 120 | 40 | 3,820 |
| 3,900 | 3,490 | 260 | 120 | 40 | 3,910 |
| 4,000 | 3,580 | 260 | 120 | 40 | 4000 |
The equilibrium level of GDP and consumption expenditure is changed because the investment level is increased. So the new equilibrium level of GDP and consumption expenditure can be plotted as follows:
The GDP is measured on horizontal axis and on vertical axis the consumer expenditure is measured.
There is a shift of consumption expenditure from (C + I + G +NE) to (C + I + G + NE1) due to the increase in investment. Point E2 is the current equilibrium point where the consumption cost is equal to the amount of GDP and the 45 degree line intersects. The amount of GDP equilibrium rises to $200 due to the investment rise of $20.
Economics Concept Introduction
Introduction:
GDP represents the Gross Domestic Product. It can be defined as the market value of all the finished goods produced in a given period in a country. GDP may be measured periodically, but is usually performed annually. Nominal GDP, Real GDP, growth rate of GDP and per capita GDP are various forms of GDP measurements.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Please answer step by step
Suppose there are two firms 1 and 2, whose abatement costs
are given by c₁ (e₁) and C2 (е2), where e denotes emissions and
subscripts denote the firm.
We assume that c{(e) 0 for i = 1,2 and for any
level of emission e we have c₁'(e) # c₂' (e).
Furthermore, assume the two firms make different contributions
towards pollution concentration in a nearby river captured by the
transfer coefficients ε₁ and 2 such that for any level of emission
e we have C₂'(e)
# The regulator does not know the resulting
C₁'(e) Τι
environmental damages. Using an analytical approach explain
carefully how the regulator may limit the concentration of
pollution using (i) a Pigouvian tax scheme and (ii) uniform
emissions standards. Discuss the cost-effectiveness of both
approaches to control pollution.
Bill’s father read that each year a car’s value declines by 10%. He also read that a new car’s value declines by 12% as it is driven off the dealer’s lot. Maintenance costs and the costs of “car problems” are only $200 per year during the 2-year warranty period. Then they jump to $750 per year, with an annual increase of $500 per year.Bill’s dad wants to keep his annual cost of car ownership low. The car he prefers cost $30,000 new, and he uses an interest rate of 8%. For this car, the new vehicle warranty is transferrable.(a) If he buys the car new, what is the minimum cost life? What is the minimum EUAC?(b) If he buys the car after it is 2 years old, what is the minimum cost life? What is the minimum EUAC?(c) If he buys the car after it is 4 years old, what is the minimum cost life? What is the minimum EUAC?(d) If he buys the car after it is 6 years old, what is the minimum cost life? What is the minimum EUAC?(e) What strategy do you recommend? Why?
Please show each step and formula,…
Knowledge Booster
Similar questions
- O’Leary Engineering Corp. has been depreciating a $50,000 machine for the last 3 years. The asset was just sold for 60% of its first cost. What is the size of the recaptured depreciation or loss at disposal using the following depreciation methods?(a) Straight-line with N = 8 and S = 2000(b) Double declining balance with N = 8(c) 40% bonus depreciation with the balance using 7-year MACRS Please show every step and formula, don't use excel. The answer should be (a) $2000 loss, (b) $8000 deo recap, (c) $14257 dep recap, thank you.arrow_forwardThe cost of garbage pickup in Green Gulch is $4,500,000 for Year 1. The population is increasing at 6%, the nominal cost per ton is increasing at 5%, and the general inflation rate is estimated at 4%.(a) Estimate the cost in Year 4 in Year-1 dollars and in nominal dollars.(b) Reference a data source for trends in volume of garbage per person. How does including this change your answer? Please show every step and formula, don't use excel. The answer should be $6.20M, $5.2M, thank you.arrow_forwardPlease show each step with formulas, don't use Excel. The answer should be 4 years, $16,861.arrow_forward
- Assume general inflation is 2.5% per year. What is the price tag in 8 years for an item that has an inflation rate of 4.5% that costs $700 today? Please show every step and formula, don't use excel. The answer should be $1203, thank you.arrow_forwardThe average cost of a certain model car was $22,000 ten years ago. This year the average cost is $35,000.(a) Calculate the average monthly inflation rate (fm) for this model.(b) Given the monthly rate fm, what is the effective annual rate, f, of inflation for this model?(c) Estimate what these will sell for 10 years from now, expressed in today’s dollars. Please show all steps and formulas, don't use excel. The answer should be (a) 0.3877%, (b) 4.753%, (c) $55,682arrow_forwardA mining corporation purchased $120,000 of production machinery and depreciated it using 40% bonus depreciation with the balance using 5-year MACRS depreciation, a 5-year depreciable life, and zero salvage value. The corporation is a profitable one that has a 22% combined incremental tax rate. At the end of 5 years the mining company changed its method of operation and sold the production machinery for $40,000. During the 5 years the machinery was used, it reduced mine operation costs by $32,000 a year before taxes. If the company MARR is 12% after taxes, was the investment in the machinery a satisfactory one? Please show every step with formulas and don't use excel. The answer should be 14.8%, thank you.arrow_forward
- An engineer is working on the layout of a new research and experimentation facility. Two operators will be required. If, however, an additional $100,000 of instrumentation and remote controls were added, the plant could be run by a single operator. The total before-tax cost of each plant operator is projected at $35,000 per year. The instrumentation and controls will be depreciated by means of a modified accelerated cost recovery system (MACRS). If this corporation (22% combined corporate tax rate) invests in the additional instrumentation and controls. how long will it take for the after-tax benefits to equal the $100,000 cost? In other words, what is the after-tax payback period? Please write out every step and formula, don't use excel. The answer should be 3.08 years, thank you.arrow_forwardThe effective combined tax rate in a firm is 28%. An outlay of $2 million for certain new assets is under consideration. Over the next 9 years, these assets will be responsible for annual receipts of $650,000 and annual disbursements (other than for income tax) of $225,000. After this time, they will be used only for stand-by purposes with no future excess of receipts over disbursements. (a) What is the prospective rate of return before income taxes? (b)What is the prospective rate of return after taxes if straight-line depreciation can be used to write off these assets for tax purposes in 9 years? (c) What is the prospective rate of return after taxes if it is assumed that these assets must be written off for tax purposes over the next 20 years, using straight-line depreciation? Please write out each step with formulas and don't use Excel. The answers should be (a)15.4% (b) 11.5% (c) 10.0%, thank youarrow_forward- 1. (Maximum length one page) Consider an infectious disease with the following characteristics: Individuals can exist in three states, susceptible, infected, and recovered. Once recovered, an individual cannot be re-infected and remains immune for life. The transmission rate, t, is 1/20. The recovery rate, k, is 1/5. Each person interacts randomly with others in the population and has contacts with 10 people each time period. There is no birth or death in the population. -Initially all people are susceptible. - No one dies from the disease and there is no treatment. a) Draw a compartmental model for this infectious disease.arrow_forward
- Consider an obstetrician who can perform two types of deliveries: normal deliveries and cesarean deliveries. Each typeof delivery provides different levels of income for the physician, and the physician has some ability to induce patientsto opt for cesarean deliveries. The model is as follows:The physician’s utility is defined as:U = U(Y, I)where:• Y is the income from performing deliveries.• I is the total disutility from inducementThe income Y from deliveries depends on the type of delivery:Y = Yn · N + YC · Cwhere:• Yn is the income per normal delivery, Yn = 1, 000• YC is the income per cesarean delivery, Yc = 1, 500,• Initial number of births Binitial = 100,• Post-shock number of births Bshock = 90,• a(i) = 0.1 + 0.05i is the fraction of total births that are cesareans, which increases with inducement level i,• the physician sets the inducement level to i = 2.• N = B · (1 − a(i)) is the number of normal deliveries,• C = B · a(i) is the number of cesarean deliveriesDue to a…arrow_forwardConsider an obstetrician who can perform two types of deliveries: normal deliveries and cesarean deliveries. Each typeof delivery provides different levels of income for the physician, and the physician has some ability to induce patientsto opt for cesarean deliveries. The model is as follows:The physician’s utility is defined as:U = U(Y, I)where:• Y is the income from performing deliveries.• I is the total disutility from inducementThe income Y from deliveries depends on the type of delivery:Y = Yn · N + YC · Cwhere:• Yn is the income per normal delivery, Yn = 1, 000• YC is the income per cesarean delivery, Yc = 1, 500,• Initial number of births Binitial = 100,• Post-shock number of births Bshock = 90,• a(i) = 0.1 + 0.05i is the fraction of total births that are cesareans, which increases with inducement level i,• the physician sets the inducement level to i = 2.• N = B · (1 − a(i)) is the number of normal deliveries,• C = B · a(i) is the number of cesarean deliveriesDue to a…arrow_forwardepidemiology. 2 to 3 setences max for each questionarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
