Homework Answers
(I)
MPC = 1 - MPS = 1 - 0.25 = 0.75
Yd = Y - T = Y - 400
C = 300 + 0.75Yd = 300 + 0.75(Y - 400) = 300 + 0.75Y - 300 = 0.75Y
PAE = C + I + G
PAE = 0.75Y + 900 + 0.25Y - 100r + 400 [With balanded budget, T = G = 400]
PAE = Y + 1300 - 100r
When r = Y = 0, PAE = 1300 (vertical intercept of PAE)
(II)
In goods market equilibrium, Y = PAE
(III)
Y = Y + 1300 - 100r
100r = 1300
r = 13.....(Equation of IS curve)
Since IS equation is independent of Y, it means that IS curve is horizontal at an interest rate of 13, shown below.
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Short Run Keynesian Model (30 points) Consider an economy described by the following: autonomous consumption is...
B,c,d,e please solve Suppose in the economy autonomous consumption - $100, autonomous investmen $120, government purchases...
B,c,d,e please solve
Suppose in the economy autonomous consumption - $100, autonomous investmen $120, government purchases G-$400 lump-sum taxes = $70, transfers Tr-$20, exports Er $150 autonomous imports im = $30, marginal propensity to consume mpc = 0.8, proportional income tax rate 1-20%, marginal propensity to invest mpi-0.1, and marginal propensity to imports mpm-0.4 (a) For this economy calculate (i) the amount of autonomous spending: (ii) the value of the spending multiplier; (iii) the equilibrium level of output; (iv) the...
Problem 4 Consider the following economy: Consumption Expenditure 446,832 million Planned Investment Expenditure 346,877 million Government...
Problem 4
Consider the following economy:
Consumption Expenditure
446,832 million
Planned Investment Expenditure
346,877 million
Government Expenditure
446,832 million
Exports
402,443 million
Imports
388,374 million
Marginal Propensity to Save
0.3
Marginal Tax Rate
0.32
Autonomous Taxes
301,240 million
Marginal Propensity to Import (nx)
0.04
(a) Calculate the equilibrium level of
income. (0.5 mark)
(b) Calculate autonomous consumption. (0.5
mark)
(c) Calculate autonomous net exports. (0.5
mark)
(d) Calculate autonomous planned
expenditures. (0.5 mark)
(e) Calculate the marginal leakage rate. (0.5
mark)
(f) Assume that the...
Question 3: Multiplier Model (20 Points] Suppose the components of a closed economy can be described...
Question 3: Multiplier Model (20 Points] Suppose the components of a closed economy can be described by the following set of equations: Y=C+I+G C= 1200 +0.8 (Y-T) I = 750 G = 900 T=950 (a) Is the government currently running a balanced budget, a budget deficit or a budget surplus? Explain. [3 Points (b) Calculate the equilibrium income. [6 Points) (c) Graphically illustrate, using the Keynesian Cross Diagram, the effect of a decrease in government spending on equilibrium output. [5...
Consider the Mundell-Fleming short-run model of a small open economy under floating exchange rates described by...
Consider the Mundell-Fleming short-run model of a small open economy under floating exchange rates described by the following equations (1) through (7). Assume that there are free capital flows and that interest rate parity holds so that where 5 is the world interest rate. (1) Cu 400+0.8 (Y-D: (2) 1 = 850-60r (3) G = 1200; (4) T=1000 + 0.25Y: (5) NX = 600 - 200e : (6) Y=C+I+G+ NX; (7) (M/P )= 0.5Y -50rt. Equation (6) is the goods...
21. G increase with algebra. Consider an economy described by the following model. Y = K1/3L2/3...
21. G increase with algebra. Consider an economy described by the following model. Y = K1/3L2/3 K = 1000; L = 1000 G = 100 T = 100 C = 250 + 0.5(Y-T) 1 = 600 – 100r Calculate the equilibrium real interest rate, national saving, public saving, private saving, consumption, output, and investment. (Hint: you probably don't want to solve for them it in that order.) i.rs ii. national saving = iii. public saving = iv. private saving =...
Liquidity Trap in the IS-LM Model (50 points) Consider a closed economy in which output is...
Liquidity Trap in the IS-LM Model (50 points) Consider a closed economy in which output is the sum of consumption, investment and government purchases Y = C + I + G, and where C, I and G are respectively given by C = 5000 – 2000 r + 0.8(Y– T), I = 1500 – 3000 r, and G = 2500. Note also that lump-sum taxes T are given by 1250. (a) (5 points) Recalling that national savings equals S =...
Consider the following economy (with flexible exchange rate system): • Desired consumption: Cd = 300 +...
Consider the following economy (with flexible exchange rate system): • Desired consumption: Cd = 300 + 0.5Y −2000r • Desired investment: Id = 200−3000r • Government purchases: G = 100 • Net export: NX = 350−0.1Y −0.5e • Real exchange rate: e = 20 + 1000r • Full employment: ¯ Y = 900. • Nominal money stock: M = 4354 • Real money demand: L = 0.5Y −200r 1 (a) Find the equations for NX(r,Y )) and Sd(r,Y )−Id(r) and...
You are given the following information about an economy(interest rate is measured in percentage points). A...
You
are given the following information about an economy(interest rate
is measured in percentage points). A five percent interest is r =
5.
1. You are given the following information about an economy (note: the interest rate is measured in percentage points. A five percent interest is r5): (M/P) = 100 (M/P)"=0.2 Y - 10 C = 150+ 0.667 YD-10 I=200 - 10r + 0.1 Y G=200 NX = 50 | T = 0.25 Y YD = Y-T A. (i)...
1. Consider an economy described by the following: C = 400 +0SY -IA - TRỊ I...
1. Consider an economy described by the following: C = 400 +0SY -IA - TRỊ I = 150 -0.18-10 G = 200, T = 2Y, TR = 100 transfers, G- Where consumption, I investment, t is the marginal tax rate, TR government purchases, and is the interest rate. a. Derive the Is relation. (Hint: You want an equation with Y on the left hand side and everything else on the right.) b. What is equilibrium Y if the interest rate...
B,c,d,e please solve
Suppose in the economy autonomous consumption - $100, autonomous investmen $120, government purchases G-$400 lump-sum taxes = $70, transfers Tr-$20, exports Er $150 autonomous imports im = $30, marginal propensity to consume mpc = 0.8, proportional income tax rate 1-20%, marginal propensity to invest mpi-0.1, and marginal propensity to imports mpm-0.4 (a) For this economy calculate (i) the amount of autonomous spending: (ii) the value of the spending multiplier; (iii) the equilibrium level of output; (iv) the...
Problem 4
Consider the following economy:
Consumption Expenditure
446,832 million
Planned Investment Expenditure
346,877 million
Government Expenditure
446,832 million
Exports
402,443 million
Imports
388,374 million
Marginal Propensity to Save
0.3
Marginal Tax Rate
0.32
Autonomous Taxes
301,240 million
Marginal Propensity to Import (nx)
0.04
(a) Calculate the equilibrium level of
income. (0.5 mark)
(b) Calculate autonomous consumption. (0.5
mark)
(c) Calculate autonomous net exports. (0.5
mark)
(d) Calculate autonomous planned
expenditures. (0.5 mark)
(e) Calculate the marginal leakage rate. (0.5
mark)
(f) Assume that the...
Question 3: Multiplier Model (20 Points] Suppose the components of a closed economy can be described by the following set of equations: Y=C+I+G C= 1200 +0.8 (Y-T) I = 750 G = 900 T=950 (a) Is the government currently running a balanced budget, a budget deficit or a budget surplus? Explain. [3 Points (b) Calculate the equilibrium income. [6 Points) (c) Graphically illustrate, using the Keynesian Cross Diagram, the effect of a decrease in government spending on equilibrium output. [5...
Consider the Mundell-Fleming short-run model of a small open economy under floating exchange rates described by the following equations (1) through (7). Assume that there are free capital flows and that interest rate parity holds so that where 5 is the world interest rate. (1) Cu 400+0.8 (Y-D: (2) 1 = 850-60r (3) G = 1200; (4) T=1000 + 0.25Y: (5) NX = 600 - 200e : (6) Y=C+I+G+ NX; (7) (M/P )= 0.5Y -50rt. Equation (6) is the goods...
21. G increase with algebra. Consider an economy described by the following model. Y = K1/3L2/3 K = 1000; L = 1000 G = 100 T = 100 C = 250 + 0.5(Y-T) 1 = 600 – 100r Calculate the equilibrium real interest rate, national saving, public saving, private saving, consumption, output, and investment. (Hint: you probably don't want to solve for them it in that order.) i.rs ii. national saving = iii. public saving = iv. private saving =...
You
are given the following information about an economy(interest rate
is measured in percentage points). A five percent interest is r =
5.
1. You are given the following information about an economy (note: the interest rate is measured in percentage points. A five percent interest is r5): (M/P) = 100 (M/P)"=0.2 Y - 10 C = 150+ 0.667 YD-10 I=200 - 10r + 0.1 Y G=200 NX = 50 | T = 0.25 Y YD = Y-T A. (i)...
1. Consider an economy described by the following: C = 400 +0SY -IA - TRỊ I = 150 -0.18-10 G = 200, T = 2Y, TR = 100 transfers, G- Where consumption, I investment, t is the marginal tax rate, TR government purchases, and is the interest rate. a. Derive the Is relation. (Hint: You want an equation with Y on the left hand side and everything else on the right.) b. What is equilibrium Y if the interest rate...
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