Question

In: Economics

1. Assume that the consumption function is given by C = 200 + 0.5(Y – T)...

1. Assume that the consumption function is given by C = 200 + 0.5(YT) and the investment function is I = 1,000 – 200r, where r is measured in percent, G equals 300, and T equals 200.

a.    What is the numerical formula for the IS curve?

b.    What is the slope of the IS curve? (Hint: The slope of the IS curve is the coefficient of Y when the IS curve is written expressing r as a function of Y.)

c. If G increases to 600, what is a new IS curve?

d. Graphically illustrate IS curve from part a and new IS curve from part c.

Solutions

Expert Solution


Related Solutions

1. Assume that the consumption function is given by C = 200 + 0.5(Y – T)...
1. Assume that the consumption function is given by C = 200 + 0.5(Y – T) and the investment function is I = 1,000 – 200r, where r is measured in percent, G equals 300, and T equals 200. What is the numerical formula for the IS curve? What is the slope of the IS curve? (Hint: The slope of the IS curve is the coefficient of Y when the IS curve is written expressing r as a function of...
Assume that the consumption function is given by C = 200 + 0, 75(Y − T)....
Assume that the consumption function is given by C = 200 + 0, 75(Y − T). Investment is 100; government purchases and taxes are both 100. (a) This economy has TODAY a GDP of 1700, is this an equilibrium level of GDP? (HINT: Find the AS the AD and compare them). (b) Will the GDP NEXT WEEK increase or decrease? (HINT: looking to your previous answer see if AS is lower or higher than AD, then think what will happen...
In the Keynesian cross, assume that the consumption function is given by: C(Y-T)=210+0.5(Y-T) and government purchases...
In the Keynesian cross, assume that the consumption function is given by: C(Y-T)=210+0.5(Y-T) and government purchases and taxes are both 100. Current planned investment is 750. A) Plot the Keynesian cross with both axes going from 0 to 8000. Be sure to label the axes and the planned expenditure function as PE0. B) What is the equilibrium level of income? Show this on your graph as Y0. C) Give the formula for the government purchase multiplier and compute it for...
2. Assume a consumption function C = 100 + 0.8(Y-T), and let G = 200, T...
2. Assume a consumption function C = 100 + 0.8(Y-T), and let G = 200, T = 200, I = 100. a. First, suppose there is just a tax cut alone, increasing T from 200 to 250. Use the relevant Keynesian multiplier to compute the change in output. (5 pts) b. If instead, there is an increase in government spending from 200 to 250. By how much will output change? (5 pts) c. Now suppose there is a simultaneous action...
In the Keynesian cross model, assume that the consumption function is given by C=120+0.8(Y-T)
solve the following:a. In the Keynesian cross model, assume that the consumption function is given by C=120+0.8(Y-T). Planned investment is 200; government purchases and taxes are both 400. Y, C, I G&T are all in billions. i Graph planned expenditure as a function of income. ii. What is equilibrium income? iii. If government purchases increase to 420, what is the new equilibrium income? What is the multiplier for government purchases? iv. What level of government purchases is needed to achieve an income of 2,400? (Taxes remain...
In the Keynesian cross model, assume that the consumption function is given by C=$70+0.7(Y−T)C=$70+0.7(Y−T) Planned investment...
In the Keynesian cross model, assume that the consumption function is given by C=$70+0.7(Y−T)C=$70+0.7(Y−T) Planned investment is $200; government purchases and taxes are both $100. What level of government purchases is needed to achieve an income of $1160? Assume taxes remain at $100. What level of taxes is needed to achieve an income of $1160? Assume government purchases remain at $100.
In the Keynesian cross model, assume that the consumption function is given by C=$105+0.7(Y−T) Planned investment...
In the Keynesian cross model, assume that the consumption function is given by C=$105+0.7(Y−T) Planned investment is $150; government purchases and taxes are both $150. c. If government purchases increase to $165, what is the new equilibrium income? What is the multiplier for government purchases? new Y = $ multiplier:
Question 1. In a closed economy, the consumption function is given by C = 200 +...
Question 1. In a closed economy, the consumption function is given by C = 200 + 0.75(Y-T). The investment function is I = 200 – 25r. Government purchases and taxes are both 100. The money demand function in the economy is (M/P)d = Y – 100r. The money supply M is 1,000 and the price level P is 2. a. Derive the equations of IS and LM curves. b. Find the equilibrium interest rate r and the equilibrium level of...
Assume the following model of the expenditure sector: C = 1000 +.7 (Y-T) Consumption Function T...
Assume the following model of the expenditure sector: C = 1000 +.7 (Y-T) Consumption Function T = 300+ .2985 Y Tax Function I = 500 – 50 r Investment Function G = 2000 Government Expenditures NX = - 1500 Net Exports Md/P = .5 Y -50 r Demand for Money Ms/P = 1000 Money Supply a- Calculate the multiplier for this economy. (Use two decimal points) b- Drive the “IS” and “LM” equations for this economy. c- Fiscal policy authorities...
Consider the economy of Hicksonia a) The consumption function is given by: C=300+0.6(Y-T). The investment function...
Consider the economy of Hicksonia a) The consumption function is given by: C=300+0.6(Y-T). The investment function is: I=700-80r. Government purchases and taxes are both 500. For this economy, graph the IS curve for r changing from 0 to 8 b) The money demand function in Hicksonia is (M/P)^d=Y-200r. The money supply M is 3000 and the price level P is 3. For this economy, graph the LM curve for r changing from 0 to 8. c) Find the equilibrium interest...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT