Question

3. Fill in the blanks in the table below. Assume that MPC is constant for everyone in the economy. MPC Spending Multiplier Change in government spending Change in income 100 $15 20 $2,000 0.6 -$400 $450 0.5 $900 4. Assume that the equilibrium in the loanable funds market is at interest rate of 1.25% and quantity of funds at $20 billion. Suppose the current government deficit is zero so government is not borrowing any money. a) Suppose now government increases spending by $2 billion and finances it entirely by borrowing. This deficit increases equilibrium interest rate to 2% and equilibrium quantity of funds to $21.5. Show the changes on the graph. b) What happens to private investment (1) and total savings as a result of increase in the government spending? c) Assuming total crowding out, that is, no change in aggregate demand, by how much does consumption (C) change?

Answer 1

according to HOMEWORKLIB POLICY i am answering only first question

formula used: AYC Change in Income) = 1 AG (Change in I-MPC gove spending) Row & G = $15 Rowe AG spending multiplier = 100 - Impe=100 that is I 100 or i-mPC = 0.01 ImPC = 0.99 DG = $15 7 AY = 15 - 0.0L Jay=1500 Row 2 AY=2000 ; spending multiplier=20. I = 20 I MPC 1-MPC = 0.05 IMPC=0.95% AG= DYC Spending multipler) = AY (I-mpc = 20001 0.05). TOG=100/ Row 3 1-0.6 MPC=0.6 spending multiplier / = 25 DG=-400 DY = - 400 – 1000 0.4 BY2-1000

Row 4 MPC = 0.5 multiplier AG = 450 AY = 900 / 1-05 Table MPC Spending multipliar و ا لا 0.99 0.95 0.6 0.5 100 20 $ 154 $100 $1500 $ 2000 - 1000 $900 $-yoo 2.0 J $ 450