Question

KEYNESIAN MACROECONOMICS ( THE ROLE OF AGGREGATE DEMAND Derive and compare the mutipliers for two-sector, three sector and four-sector economies Assume a 2 Suppose that for a particular economy C 2500 T-2500 G 2500 3000 a) Determine the equlbrium income and show it graphicaly Detemine thegovemment budget b) Has the economy achieved ful employment equilibrium income a employment is 350007 Whr )taxes are reduced? What is the new budget and the new funcion forax Show the outcomes graphically C- 200 0.75Yd 800 G 1000 a) Caloulate national income when the economy is at equlibum Grach your resuts b) Fuil employment is achieved when income is 5500 What is the multiplie? (U) How much should taxes be to achieve ful ๙glo ? Walste bdget atta G-1000 X 500 graph your nsuts b) Ful ﹃ioynerg is achieved when roon e 5500 How 抛 government expenduze increase c) AMemployment, what is the ( budget? () trade balance d) Based on your answers in (c).s ahisablefor gow employment? Sugoest a beter optioni aternative broease to achieve full KEYNESIAN MACROECONOMICS (l MONEY, INTEREST AND INCOME 1. Explain the relationship between the rate of interest and the demand for money within the Keynesian theory of money demand 2. Using the 4-quadrant diagram, derive graphically the IS curves given ifferent slopes of the (a) injection schedul and (b) leakage schedule )Using the 4-quadrant dagram, derive graphicaly the L schedule given different slopes of (a) money demand for speculation; and (b) money demand for transaction and precautionary purposes 3. Suppose that C- 60 0.8Yd l150-10 Т.200 Ms 100 Md 40+0.1Y-10 a. White the equations for the IS and LM schedules b. Find the ealbum values for ioome ard·terest rate. supply increases to 130 Show the change graphically Find brum when money new equ a. If investment is complebely interest inelastic What are the new equations for the IS and LM schedues Show them graphically )Find the new equilibrium values for income and interest rate KEYNESIAN MACROECONOMICS (I): THE ROLE OF AGGREGATE DEMAND 1. Derive and compare the multipliers for two-sector, three sector and four-sector economies. Assume a proportional income tax exists for the three-sector and four-sector economies. 2. Suppose that for a particular economy: С 2500 + 0.8Yd T 2500 G-2500 3000 (a) Determine the equilibrium income and show it graphically. Determine the government budget. (b) Has the economy achieved full employment if equilibrium income at full employment is 35000? What are the required changes to achieve full employment, if (i) government expenditure is increased? How does the government budget change? (ii) taxes are reduced? What is the new budget and the new function for tax. Show the outcomes graphically 3. In a three-sector economy: С 200 + 0.75Yd T 0.2Y I 800 G- 1000 (a) Calculate national income when the economy is at equilibrium. Graph your results. (b) Full employment is achieved when income is 5500. (0) What is the multiplier? (i) How much should taxes be cut to achieve full employment? What is the budget at ful 4. In an open economy: C 400 0.75Yd 600 G 1000 X 500 Z 0.1Y (a) Calculate national income when the economy is at equilibrium. Use the injection-leakage approach to graph your results. (b) Full employment is achieved when income is 5500. How much should govemment expenditure increase to achieve full employment? (c) At full employment, what is the (i) budget? (i) trade balance? (d) Based on your answers in (c), is it advisable for government expenditure to increase to achieve full employment? Suggest a better option/ altenative. KEYNESIAN MACROECONOMICS (II): MONEY, INTEREST AND INCOME Explain the relationship between the rate of interest and the demand for money within the Keynesian theory of money demand. 1. (i) Using the 4-quadrant diagram, derive graphically the IS curves given different slopes of the: (a) injection schedule; and (b) leakage schedule. 2. (ii) Using the 4-quadrant diagram, derive graphically the LM schedule given different slopes of the: (a) money demand for speculation; and (b) money demand for transaction and precautionary purposes 3. Suppose that C = 60 + 0.8Yd 150 10r G 250 T=200 Ms 100 Md 40 +0.1Y-10r Write the equations for the IS and LM schedules. a. b. Find the equilibrium values for income and interest rate. Find the new equilibrium when money supply increases to 130. Show the change graphically. If investment is completely interest inelastic: (i) What are the new equations for the IS and LM schedules. Show them graphically (ii) Find the new equilibrium values for income and interest rate. c.

Answer 1

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