Assume the following Keynesian model: AE = C + I + G + (X - M)...
Assume the following Keynesian model: AE = C + I + G + (X - M) C = 500 + .9Yd I = 300 G = 100 X = 150 M = 50 + .1 Yd T = 100 a. Find the equilibrium level of GDP. b. Using a “Keynesian cross” (or 45-degree line) diagram, show graphically the equilibrium in part a). c. What is the spending multiplier in this model? Tax multiplier? d. Show that leakages are equal to injections at equilibrium. e. What is the government’s budget position at equilibrium? f. If government spending increases by $100, find the new equilibrium level of GDP. Show graphically.
Homework Answers
2. Assume the following Keynesian model: C = 400 + .75Yd I = 200 G =...
2. Assume the following Keynesian model: C = 400 + .75Yd I = 200 G = 100 X = 150 M = 50 + .15 Yd T = 100 a. Find the aggregate expenditure function b. Find the equilibrium level of GDP. c. Using a “Keynesian cross” (or 45-degree line) diagram, show graphically the equilibrium in part a). d. What is the spending multiplier in this model? Tax multiplier? e. Show that leakages are equal to injections at equilibrium. f....
In the simple Keynesian model, taxes do not depend on income (T = Ta). Suppose Ta...
In the simple Keynesian model, taxes do not depend on income (T
= Ta). Suppose Ta = 80 and:
C = 250 + 0.75 YD
Ip = 64
G = 100
NX = 20
A. Calculate the equilibrium GDP and show graphically. What is
the budget surplus (or deficit)? Hint: BS = T - G
B. Suppose in order to reduce the deficit, government spending
is reduced by 20 (from 100 to 80. Calculate the new equilibrium GDP
and show...
Consider the following Keynesian income model: E = C + I + G + X-M C...
Consider the following Keynesian income model: E = C + I + G + X-M C = 300 + 0.85Yd Yd = Y – T T = 60 + 0.25Y; I = 400 G = 700 X = 400 M = 50 + 0.15Y In equilibrium, Y = E: a. calculate the equilibrium level of income. b. calculate the amount of taxes collected when the economy is at equilibrium level of income and show whether the government budget is in...
ONLY 5-11 BELOW A5-10. Suppose the following aggregate expenditure model describes an economy: C = 100...
ONLY 5-11 BELOW A5-10. Suppose the following aggregate expenditure model describes an economy: C = 100 + (5/6)Yd T = (1/5)Y I = 200 G = 400 X = 300 IM = (1/3)Y where C is consumption, Yd is disposable income, T is taxes, Y is national income, I is investment, G is government spending, X is exports, and IM is imports. (a) Derive a numerical expression for aggregate expenditure (AE) as a function of Y. Calculate the equilibrium level...
Question 2 In the Keynesian cross, assume that the consumption function is given by C =...
Question 2 In the Keynesian cross, assume that the consumption function is given by C = 150 +0.7 (Y-T) Planned investment is: I = 100 – 10 *r Government purchases and taxes are both 50. a. Graph consumption as function of income. b. Graph investment as function of the real interest rate. c. Suppose that the real interest rate is 5. Write the equation of the planned expenditure. d. Suppose that the real interest rate is 5. What is the...
Q2. In the Keynesian cross model, equilibrium in the economy is obtained where planned spending equals...
Q2. In the Keynesian cross model, equilibrium in the economy is obtained where planned spending equals actual spending. (a) Explain what planned spending and actual spending are (b) Graphically present the equilibrium condition of the economy in the Keynesian cross model. (c) Explain how the economy adjusts to equilibrium if the economy finds itself with a level of planned spending which is less than actual spending (3 marks) (d) Explain why an increase in government spending leads to a greater...
Aggregate Demand I — Work It Out Question 1 In the Keynesian cross model, assume that...
Aggregate Demand I — Work It Out Question 1 In the Keynesian cross model, assume that the consumption function is given by C = $70 +0.7(Y – T) Planned investment is $200; government purchases and taxes are both $100. c. If government purchases increase to $115, what is the new equilibrium income? What is the multiplier for government purchases? new Y=$ multiplier:
4. Keynesian cross and Keynesian multiplier: In the Keynesian cross, assume that the consumption function is...
4. Keynesian cross and Keynesian multiplier: In the Keynesian cross, assume that the consumption function is given by C - 100 +0.5 (Y-T) Planned investment is 75; government purchases and taxes are both 100. a) Graph planned expenditure as a function of income. b) What is the equilibrium level of income? c) If government purchases increase to 110, what is the new equilibrium income? d) How big is the Keynesian government purchases multiplier in this example? e) What level of...
Worksheet on AE.docx Page 1 of 4 Worksheet on AE 1 Given the following information about a hypothetical economy,...
Worksheet on AE.docx Page 1 of 4 Worksheet on AE 1 Given the following information about a hypothetical economy, complete the table below. C - 200+.8 (Y-T) T+01100 G=0 (X - M) = 0 Unplanned Real GDP Y (Planned) Consumption C(Y) (Planned) Leakages Y-C(Y) =S+T (Planned) Injections I+G Total (Planned) Expenditures C(Y) +I+G+ (X-M) = AE Actual Injections (1 +G) + (Unplanned Changes in Business Inventories) Business Inventories Y - AE 500 1000 1500 2000 2200 2400 3000 3500 Worksheet...
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...
In the simple Keynesian model, taxes do not depend on income (T
= Ta). Suppose Ta = 80 and:
C = 250 + 0.75 YD
Ip = 64
G = 100
NX = 20
A. Calculate the equilibrium GDP and show graphically. What is
the budget surplus (or deficit)? Hint: BS = T - G
B. Suppose in order to reduce the deficit, government spending
is reduced by 20 (from 100 to 80. Calculate the new equilibrium GDP
and show...
Question 2 In the Keynesian cross, assume that the consumption function is given by C = 150 +0.7 (Y-T) Planned investment is: I = 100 – 10 *r Government purchases and taxes are both 50. a. Graph consumption as function of income. b. Graph investment as function of the real interest rate. c. Suppose that the real interest rate is 5. Write the equation of the planned expenditure. d. Suppose that the real interest rate is 5. What is the...
Aggregate Demand I — Work It Out Question 1 In the Keynesian cross model, assume that the consumption function is given by C = $70 +0.7(Y – T) Planned investment is $200; government purchases and taxes are both $100. c. If government purchases increase to $115, what is the new equilibrium income? What is the multiplier for government purchases? new Y=$ multiplier:
4. Keynesian cross and Keynesian multiplier: In the Keynesian cross, assume that the consumption function is given by C - 100 +0.5 (Y-T) Planned investment is 75; government purchases and taxes are both 100. a) Graph planned expenditure as a function of income. b) What is the equilibrium level of income? c) If government purchases increase to 110, what is the new equilibrium income? d) How big is the Keynesian government purchases multiplier in this example? e) What level of...
Worksheet on AE.docx Page 1 of 4 Worksheet on AE 1 Given the following information about a hypothetical economy, complete the table below. C - 200+.8 (Y-T) T+01100 G=0 (X - M) = 0 Unplanned Real GDP Y (Planned) Consumption C(Y) (Planned) Leakages Y-C(Y) =S+T (Planned) Injections I+G Total (Planned) Expenditures C(Y) +I+G+ (X-M) = AE Actual Injections (1 +G) + (Unplanned Changes in Business Inventories) Business Inventories Y - AE 500 1000 1500 2000 2200 2400 3000 3500 Worksheet...
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...
Most questions answered within 3 hours.
-
Consider the reaction, C3 H8 + O2 --> CO2 + H2O. How many
moles of O2...
asked 59 minutes ago -
You and your opponent both roll a fair die. If you both roll the
same number,...
asked 1 hour ago -
In a study of the accuracy of fast food drive-through orders,
Restaurant A had 257 accurate...
asked 1 hour ago -
Identify and describe in detail the four categories of
institutions that could be included in a...
asked 1 hour ago -
In python
class Customer:
def __init__(self, customer_id, last_name, first_name, phone_number, address):
self._customer_id = int(customer_id)
self._last_name =...
asked 1 hour ago -
What is an example of a limitation in implementing a new
ERP system and how it...
asked 1 hour ago -
In a section of 9.7cm of an artery with a radius of 2.6mm there
is a...
asked 1 hour ago -
the two carboxylic acid groups of aspartic acid have different
acidities with pKa values of 2.1...
asked 1 hour ago -
Would CuCO3 aqueous salt combined with calcium chloride
form a solid precipitate? If so, what would...
asked 1 hour ago -
How do ECM Solutions assist in embedding a culture of continuous
improvement in an organization? (Project...
asked 1 hour ago -
Directions
These directions introduce the idea of Essential Questions.
Since this may be a new concept...
asked 1 hour ago -
1.b. Fiscal policy is said to suffer from ‘crowding out’.
Explain what this means and why...
asked 2 hours ago