Question
In: Economics
Is it possible that PE > GDP in a given year in a closed economy if...
Is it possible that PE > GDP in a given year in a closed economy if some aggregate expenditure falls on output produced in the previous year? Please explain in detail with different possibilities.
Solutions
Expert Solution
It is possible in a closed economy that the public expenditure is more than the Gross Domestic Product in the economy. In a closed economy the Gross Domestic Product(GDP) = C+I+G
where C= Consumption expenditure
I= Investment
G=Government expenditure.
In the closed economy there is no trade to the outside economy.
In the closed economy the investment I= Private Savings + Public Savings.
Here, the public expenditure can be increased through the public borrowing. The main sources for public borrowing in the closed economy is explained below:
So in the closed economy the government can able to increase the public expenditure more than GDP by increasing its savings, reduce the tax rates, issue government securities to the public(within the economy), borrowing from the central bank of the economy, borrowings from individuals etc.
So the increase in public expenditure more than the GDP in a closed economy is possible.
Rahul Sunny answered 2 months agoRelated Solutions
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? (...
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...
Suppose that the closed economy of an island H is described by the following equations: GDP...
Suppose that the closed economy of an island H is
described by the following equations: GDP (Y) = 10000, government
expenditures (G) = 600, Taxes (T) = 2000, Consumption (C) = 400 +
3/4 (Y-T), and investment (I) = 200 – 1400 r
a. Write and explain the equation of the
GDP
b. Compute
1. Private saving
2. Public saving
3. National saving
4. Equilibrium interest rate
c. What can you conclude about the economy of Island
H?
Compare the effect on GDP of an adverse demand shock in the closed and open economy...
Compare the effect on GDP of an adverse demand shock in the
closed and open economy cases using graphs based on the open
economy IS-MP model. Assume flexible rate.
5. Suppose that in a closed economy GDP is $1,100 million, consumption is $750 million, and...
5. Suppose that in a
closed economy GDP is $1,100 million, consumption is $750 million,
and taxes are $200 million. What value of government purchases
would make national savings equal to $100 million and at that value
would the government have a deficit or surplus?
A. $100 million, deficit
B. $100 million, surplus
C. $150 million, surplus
D. $250 million, deficit
E. $250 million, surplus
6. Which of the
following statements is (are) correct?
(x) If an economy is closed...
At equilibrium real GDP in a private closed economy, Multiple Choice the MPC must equal the...
At equilibrium real GDP in a private closed economy,
Multiple Choice
the MPC must equal the APC.
the slope of the aggregate expenditures schedule equals the
MPS.
aggregate expenditures and real GDP are equal.
planned saving and consumption are equal.
Government actions that were taken in order to stimulate the
economy during the Great Recession of 2007–09 included the
following, except
Multiple Choice
a significant reduction of interest rates to nearly zero.
a large increase in transfer payments.
an increase...
Scenario 26-A. Assume the following information for an imaginary, closed economy. GDP = $110,000 Consumption =...
Scenario 26-A. Assume the following information for an
imaginary, closed economy. GDP = $110,000 Consumption = $70,000
Private Saving = $8,000 National Saving = $12,000
1. Refer to Scenario 26-A. For this economy, what is the tax
amount? Show your work.
2. Refer to Scenario 26-A. For this economy, investment is what
amount? .
3 Refer to Scenario 26-A. In this economy is the government
running a Surplus or Deficit and what is the amount?
4. Refer to Scenario 26-A....
Suppose the U.S. has a closed economy with GDP (Y) equal to $19.4 trillion, consumption (C)...
Suppose the U.S. has a closed economy with GDP (Y) equal to
$19.4 trillion, consumption (C) equal to $12.4 trillion, government
spending (G) equal to $3.4 trillion, transfer payments (TR) equal
to $1.6 trillion, and taxes (T) equal to $4.7 trillion. Suppose the
government increases its spending on national defense such that
government spending increases by $0.2 trillion. What must happen to
total savings (S)? That is, what is the dollar amount by which
total savings changes? Assume the values...
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