11. Consider an economy with a marginal propensity to consume of 0.60.
What would its marginal propensity to save be?
What would happen to consumption (give the direction and size of the effect) if income taxes (T) were to increase by 100, assuming that real aggregate income is unaffected? What would happen to private saving? To public saving? To national saving?
Suppose, instead, that government purchases (G) increase by 100. Assuming that aggregate income is unaffected, what would happen to consumption? What would happen to private saving? To public saving? To national saving?
Given that the marginal propensity to consume MPC of 0.60. We know that MPC + MPS = 1. Hence MPS can be computed as 1 - MPC = 1 - 0.60 = 0.4. This indicates that government spending multiplier is 1/1-MPC or 1/1-0.6 = 2.5 and tax multiplier is -MPC/1-MPC = -0.6/0.4 = -1.5.
Now if income taxes (T) were to increase by 100, assuming that real aggregate income is unaffected, the disposable income will fall by 100. This fall will result in a reduction of consumption by the MPC times which means fall in consumption is 100*0.6 = 60 and fall in private saving = 0.4*100 = 40.
We know that public saving is given by Tax - Government spending. When taxes are increased by 100, public saving will rise by 100. National saving will fall by 40 (private saving) but rise by 100 (public saving) so national income will rise in net terms and is equal to 60.
Suppose, instead, that government purchases (G) increase by 100. Assuming that aggregate income is unaffected, there is no change in consumption. Public saving falls by 100 and there is no change in private saving. Hence national saving falls by 100.
11. Consider an economy with a marginal propensity to consume of 0.60. What would its marginal...
Here are some facts about the economy of Inferior. Marginal propensity to consume 3/5 marginal propensity to import 0 autonomous consumption 4 exports 0 private investment 20 income tax rate 0 government expenditures 0 Income consumption investment government aggregate expenditures expenditures 0 10 20 30 40 50 60 70 80 90 What is equilibrium GDP?
3. (8 points) Consider the long-run model of a closed economy with a marginal propensity to consume of 0.8. Suppose the government cuts taxes by $100 billion while holding government purchases constant. What happens to the following variables? Explain and calculate the amount of change for each variable. a. Public saving (Sg) b. Private saving (Sp): c. National Saving (S): d. Investment (1)
Here are some facts about the economy of Inferior. Marginal propensity to consume 3/5 marginal propensity to import 0 autonomous consumption 4 exports 0 private investment 20 income tax rate 0 government expenditures 0 Income consumption investment government aggregate expenditures expenditures 0 10 20 30 40 50 60 70 80 90 How much is consumption when income equals 10
7. Consider a closed economy where the marginal propensity to consume is 0.85. Technological progress increases GDP by 20 billion pesos. Expansionary fiscal policy results in a $10 billion decrease in tax revenue and a $12 billion increase in the government budget deficit. (a) Calculate the (dollar) change in government spending. (b) Calculate the approximate (dollar) changes in private, public, and na- tional saving (c) Will the equilibrium real interest rate increase, decrease, or stay the same? Use a supply-demand...
Consider two economies, A and B. Economy A has a marginal propensity to consume of 0.9, a net tax rate of 0.3 and a marginal propensity to import of 0.3. Economy B has a marginal propensity to consume of 0.9, a net tax rate of 0.1 and a marginal propensity to import of 0.3. Suppose there is an increase in autonomous investment of $5 billion in each of these economies. Which of the following statements is true? Group of answer...
Suppose the marginal propensity to consume if 0.75 and autonomous consumption (consumption at zero income) is $4,000. If income is $50,000, consumption spending is a. $37,500 b. $41,500 C. $45,500 d. $54,000 QUESTION 4 If the consumption function for an economy is C = 180 + 75 Yd (disposable income) and spending increases by $800, then the resulting change in national income is a. +$2,800 OOO b. 5-3,200 c. $-2,800 d. $+3,200 QUESTION 5 Assume the actual GDP is $4800...
is to Complete the following table which depicts a hypothetical economy in which the marginal propensity to save is constant at all levels of real GDP investment spending is autonomous, and there is no government. Note: Enter whole numbers and use the minus sign where needed. Real GDP Consumption Investment Saving $ - 500 $0 2000 4000 6000 8000 10000 $500 2000 3500 5000 6500 8000 $1500 1500 1500 1500 500 1000 1500 2000 1500 1500 This economy's marginal propensity...
10.) An economy has a marginal propensity to consume and Y* , income-expenditure equilibrium GDP, equals $500 billion. Given an autonomous increase in plannėd investment of $10 billion, show the rounds of increased spending that take place by completing the accompanying table. The first and second rows are filled in for you. In the first row the increase of planned investment spending of $10 billion raises real GDP and YD by $10 billion, leading to an increase in consumer spending...
Assume an economy in which the marginal propensity to consume is 90%. Given an increase in government spending of $100, equilibrium gross domestic product will increase by: A. $100 B. $90 C. $1,000 D. $190
Gregory Mankiw, Macroecomomics (10th) Chapter 3: Problems and Applications #8, 10, 11 8. The government raises taxes by $100 billion. If the marginal propensity to consume is 0.6, what happens to the following? Do they rise or fall? By what amounts? a. Public saving b. Private saving c. National saving d. Investment 10. Work It Out Consider an economy described as follows: Y 8,000 G 2,500 T= 2,000 C 1,000 +2/3 (Y-T) 1 = 1,200-100 r. a. In this economy,...