Question
In: Economics
Consider a hypothetical economy with autonomous consumption spending equal to 100 billion dollars, a marginal propensity to consume of 0.8
Consider a hypothetical economy with autonomous consumption spending equal to 100 billion dollars, a marginal propensity to consume of 0.8, private investment spending of 160 billion dollars, government spending of 140 billion dollars, a balanced budget, and balanced trade (i.e. exports and imports are equal). Write a short essay comparing the effects (1) on the government budget and (2) on the equilibrium level of income in the economy of (i) a 5 billion dollar increase in government spending and of (ii) a 5 billion dollar decrease in net taxes.
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
Assume the following economy: Autonomous Consumption = £10,000; Marginal Propensity to Consume = 0.8; Business Investment...
Assume the following economy: Autonomous Consumption = £10,000;
Marginal Propensity to Consume = 0.8; Business Investment = £30,000
A. Find the equilibrium size of income Y and the size of the
Multiplier of Business Investment (hint: to find the Multiplier
increase investment by 10,000) (5%) B. Assume now that a government
sector is introduced, while business investment is still £30,000.
Government spending injects £50,000 into the economy. However, in
order to finance its expenditure the government levies an income
tax...
Assume the following economy: Autonomous Consumption = £10,000; Marginal Propensity to Consume = 0.8; Business Investment...
Assume the following economy: Autonomous Consumption = £10,000;
Marginal Propensity to Consume = 0.8; Business Investment = £30,000
A. Find the equilibrium size of income Y and the size of the
Multiplier of Business Investment (hint: to find the Multiplier
increase investment by 10,000) (5%) B. Assume now that a government
sector is introduced, while business investment is still £30,000.
Government spending injects £50,000 into the economy. However, in
order to finance its expenditure the government levies an income
tax...
Assume that autonomous consumption = 100, and the marginal propensity to consume = 80%. At what...
Assume that autonomous consumption = 100, and
the marginal propensity to consume = 80%.
At what level of
disposable income will savings = 0?
6. If actual investment is higher than planned
investment, what is happening to business
inventories?
Inventories
are growing
Inventories
are shrinking
Inventories
are holding steady
It
depends upon where we are in the busienss cycle
Consider two economies. In economy A: autonomous consumption equals 700, the marginal propensity to consume equals...
Consider two economies. In economy A: autonomous consumption
equals 700, the marginal propensity to consume equals 0.80, taxes
are fixed at 50, investment is 100, government spending is 100, and
net exports are 40.
In economy B: autonomous consumption equals 1000, the marginal
propensity to consume equals 0.8, taxes are proportional to income
such that consumers pay 25% of their income as taxes, investment is
250, government purchases are 150, and net exports are 400.
(i) What is the planned...
Consider two economies. In economy A: autonomous consumption equals 700, the marginal propensity to consume equals 0.80,...
Consider two economies. In economy
A: autonomous consumption equals 700, the
marginal propensity to consume equals 0.80, taxes are fixed at 50,
investment is 100, government spending is 100, and net exports are
40.
In economy B: autonomous consumption equals
1000, the marginal propensity to consume equals 0.8, taxes are
proportional to income such that consumers pay 25% of their income
as taxes, investment is 250, government purchases are 150, and net
exports are 400.
Question 1: What is the planned...
Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.50. That is,...
Consider a hypothetical economy in which the marginal propensity
to consume (MPC) is 0.50. That is, if disposable income increases
by $1, consumption increases by 50¢.
Suppose further that last year disposable income in the economy
was $400 billion and consumption was $300 billion.
On the following graph, use the blue line (circle symbol) to
plot this economy's consumption function based on these data.
01002003004005006007008007006005004003002001000-100CONSUMPTION
(Billions of dollars)DISPOSABLE INCOME (Billions of
dollars)Y-Intercept: 100Slope: 0
From the preceding data, you know...
Consider the long-run model of a closed economy with a marginal propensity to consume of 0.8....
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 (I)
If Sally’s consumption function is linear and her marginal propensity to consume is 0.8, this means...
If Sally’s consumption function is linear and her marginal
propensity to consume is 0.8, this means that
Sally’s total spending cannot
exceed 80% of her income.
Sally will spend at least 80%
of her total income.
Sally will not save money
regardless of her income.
Sally will begin to save at
the point where her marginal income is equal to
0.8.
(19)
If a household’s income increases from $50,000 to $60,000, and
as a result, its consumption...
1. Suppose that the MPC is equal to 0.8 and autonomous consumption spending is 400. Then...
1.
Suppose that the MPC is equal to 0.8 and autonomous consumption
spending is 400. Then the consumption function is given by
a.
C = 400 - 0.8Yd
b.
C = -400 + 0.2Yd
c.
C = 320 x Yd
d.
C = 400 + 0.8Yd
e.
C = 400 + 0.2Yd
2.
Suppose that the MPC is equal to 0.8 and autonomous consumption
spending is 400. At what level of income is saving = 0?
a.
400
b.
500...
Consider the closed-economy market-clearing model. Assume that the marginal propensity to consume is 0.8. The economy's...
Consider the closed-economy market-clearing model. Assume that
the marginal propensity to consume is 0.8. The economy's output
increases by $10 billion, tax revenue decreases by $6 billion, and
the government budget deficit increases by $2 billion.
(a) Calculate the dollar change in government spending. (b)
Calculate the dollar change in public saving. (c) Calculate the
dollar change in private saving. (d) Calculate the dollar change in
national saving. (e) Would the equilibrium real interest rate
increase, decrease, or stay the...
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