Question
In: Economics
Assume that the equations below represent a closed economy. Hints: YD: Disposable Income Y = C...
Assume that the equations below represent a closed economy.
Hints:
YD: Disposable Income
Y = C + I + G + NX is for part a): so, Y = 80 + MPC (YD) + I + G
C = 80 + 0.6(YD) YD = Y - T
I = 1000 T = 400
NX = (X – Im) = 0 G = 500
1. Solve for:
- Equilibrium GDP (Y)
- Disposable Income (YD)
- Consumption Spending (C)
- Private Saving
- Public Saving
- The multiplier
2. Verify that, in equilibrium total saving equals investment.
3. Suppose that the government wishes to increase equilibrium GDP by 100.
- What change in government spending is required?
- If government spending cannot change, what change in taxes is required?
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
Suppose C = 500 + 0.75 Yd where Yd is Disposable Income and Disposable Income is...
Suppose C = 500 + 0.75 Yd where Yd is Disposable Income and
Disposable Income is National Income minus Net Taxes. In this case,
the government spending multiplier equals.
Group of answer choices
a) -4 (negative 4).
b) 0.75
c) 4/3.
d) 4 (positive 4).
6. Suppose that the following information is given (Yd is disposable income): C= 100 +...
6. Suppose that the following information is given (Yd is
disposable income):
C= 100 + (.75)(Y-T) G= 250
I= 150 t= 20% M= .15Yd
a) What would be the effect on output of a $50 increase in
government spending? Show your work.
b) What if the marginal propensity to import was to increase.
What would be the effect on output? Describe why it would affect
economic activity.
c) What would be the effect on the equilibrium level of output...
Assume that GDP (Y ) is 5,000 in a closed economy. Consumption (C) is given by...
Assume that GDP (Y ) is 5,000 in a
closed economy. Consumption (C) is given by the equation C =
1,200+0.3(Y −T)−50r, where r is the real interest rate, in percent.
Investment (I) is given by the equation I = 1, 500 − 50r. Taxes (T
) are 1,000, and government spending (G) is 1,500.
(a) What are the equilibrium values of
C, I, and r?
(b) What are the values of private
saving, public saving, and national saving? (...
Assume the following information for the economy: C = c0 + c1Yd, where Yd = (1-t)Y ...
Assume the following information for the economy:
C = c0 + c1Yd, where Yd =
(1-t)Y
C = 200 + 0.75(1-.2)Y
I =
I
I = 700
G =
G
G = 800
X =
X
X = 400
M =
mY
M = 0.1Y
Find the savings.
We will assume that consumption depends primarily on disposable income (i.e. C = C(Y −T)). It...
We will assume that consumption depends primarily on disposable
income (i.e. C = C(Y −T)). It seems likely that in addition to
disposable income, the real interest rate also influences
consumption decisions. To show this, we could write the consumption
function as C = C(Y −T,r), where consumption is increasing in
disposable income but decreasing in the real interest rate. Answer
the following questions:
(a) Provide an intuitive explanation for why consumption might
decrease as r increases.
(b) Explain how...
Consider the closed economy Classical model depicted below, where consumption depends positively on disposable income and...
Consider the closed economy Classical model depicted below,
where consumption depends positively on disposable income and
negatively on the real interest rate.
1) Suppose the government decides to reduce the overall level of
taxes. What happens to public savings (Spublic), private savings
(Sprivate), and total savings (S)?.
2) ) According to the Classical model, what are the long-run
implications of the above change on the real interest rate (r),
output (Y), and the expenditure components of output consumption
(C), investment...
Given the following data for a hypothetical closed economy: Real GDP (GDP = Y) Taxes Yd...
Given the following data for a hypothetical closed
economy:
Real GDP
(GDP = Y)
Taxes
Yd
C
S
I
G
AE
200
50
190
80
50
250
50
220
80
50
300
50
250
80
50
350
50
280
80
50
400
50
310
80
50
450
50
340
80
50
500
50
370
80
50
550
50
400
80
50
600
50
430
80
50
650
50
460
80
50
700
50
490
80
50
Fill-in the table.
Determine...
Given the following data for a hypothetical closed economy: Real GDP (GDP = Y) Taxes Yd...
Given the following data for a hypothetical closed
economy:
Real GDP
(GDP = Y)
Taxes
Yd
C
S
I
G
AE
200
50
190
80
50
250
50
220
80
50
300
50
250
80
50
350
50
280
80
50
400
50
310
80
50
450
50
340
80
50
500
50
370
80
50
550
50
400
80
50
600
50
430
80
50
650
50
460
80
50
700
50
490
80
50
Fill-in the table.
Determine...
Given the following data for a hypothetical closed economy: Real GDP (GDP = Y) Taxes Yd...
Given the following data for a hypothetical closed
economy:
Real GDP
(GDP = Y)
Taxes
Yd
C
S
I
G
AE
200
50
190
80
50
250
50
220
80
50
300
50
250
80
50
350
50
280
80
50
400
50
310
80
50
450
50
340
80
50
500
50
370
80
50
550
50
400
80
50
600
50
430
80
50
650
50
460
80
50
700
50
490
80
50
Fill-in the table.
Determine...
Consider a hypothetical economy where: • C(Yd) = 105 + 0.8 × (Y − T) •...
Consider a hypothetical economy where: • C(Yd) = 105 + 0.8 × (Y
− T) • I(r) = 74 − 1 × r • G = 65 • T = 50 1. Using the information
above, write out the planned Aggregate Expenditure equation. 2.
Write down an expression for the Investment-Savings (IS) Curve. 3.
Assume that inflation is zero, so that i = r. This economy’s
central bank follows a given Monetary Policy Rule: r = i = 0.003 ×...
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