Question

In: Economics

Suppose a closed economy has an aggregate consumption function given by C = 200 + 0.50Yd and generates $2400 output and income in equilibrium

2

Suppose a closed economy has an aggregate consumption function given by C = 200 + 0.50Yd and generates $2400 output and income in equilibrium. Suppose also that the government collects a lump-sum tax of 100.

How much will the private sector be saving total in equilibrium?



3

Suppose a closed economy generates $2500 output and income in equilibrium. Suppose also that the government spends 350 and imposes a lump-sum tax of 100.

By how much is the government in deficit?


Solutions

Expert Solution

2) Private saving = income - taxes - consumption

= 2400 - 100 - 200 - 0.50*(2400 - 100)

= 950

Hence saving of private sector is 950

3) Budget deficit = government spending - taxes

= 350 - 100

= 250

Hence budget deficit is 250

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

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...
7. Consider the following income-expenditure model of a closed economy. The aggregate consumption function is C...
7. Consider the following income-expenditure model of a closed economy. The aggregate consumption function is C = 100 +0.8(Y – T); taxes are T = 380; investment, I, is 300 and government expenditure, G, is 200. (a) Calculate the multiplier, equilibrium income and the government budget surplus [6 marks] (b) Now let taxes, T = 10 + 0.25Y. Recalculate the multiplier, equilibrium income and the government budget surplus. Try to explain any differences between your answers and your answers to...
7. Consider the following income-expenditure model of a closed economy. The aggregate consumption function is C...
7. Consider the following income-expenditure model of a closed economy. The aggregate consumption function is C = 100 +0.8(Y – T); taxes are T = 380; investment, I, is 300 and government expenditure, G, is 200. ( a)Calculate the multiplier, equilibrium income and the government budget surplus [6 marks] (b)Now let taxes, T = 10 + 0.25Y. Recalculate the multiplier, equilibrium income and the government budget surplus. Try to explain any differences between your answers and your answers to part...
Suppose that output (Y ) in an economy is given by the following aggregate production function:...
Suppose that output (Y ) in an economy is given by the following aggregate production function: Yt = Kt + Nt where Kt is capital and Nt is the population. Furthermore, assume that capital depreciates at rate δ and that savings is a constant proportion s of income. You may assume that δ > s. 1. Suppose that the population remains constant. Solve for the steady-state level of capital per worker. 2. Now suppose that the population grows at rate...
Suppose that output (Y ) in an economy is given by the following aggregate production function:...
Suppose that output (Y ) in an economy is given by the following aggregate production function: Yt = Kt + Nt where Kt is capital and Nt is the population. Furthermore, assume that capital depreciates at rate δ and that savings is a constant proportion s of income. You may assume that δ > s. 1. Suppose that the population remains constant. Solve for the steady-state level of capital per worker. 2. Now suppose that the population grows at rate...
Suppose a closed economy has a consumption-output ratio of 0.8. Total output is 1 Billion in...
Suppose a closed economy has a consumption-output ratio of 0.8. Total output is 1 Billion in 2018 and the capital stock equals 5 Billion. It's depreciation rate and population growth rate are both equal to 2%. What is true in 2019?    income will have grown     consumption will take an even larger share of output     we do not have enough information to calculate changes from 2018 to 2019     the capital stock must be smaller than in 2018
In a closed economy, given the following: The consumption function C = 0.8(1 – 0.25) Y...
In a closed economy, given the following: The consumption function C = 0.8(1 – 0.25) Y + 12           The average tax rate t = 25% The level of private investment I = 26 The level of government spending G = 14 Where Y is the national income. Calculate the equilibrium level of income and output in the economy. Calculate the expenditure multiplier and show the effect of an increase in government spending and an increase in private investment. Given the...
V+Consider a closed economy with fixed prices and wages. Suppose the consumption function is given by...
V+Consider a closed economy with fixed prices and wages. Suppose the consumption function is given by ? = 50 + 0.5? ? where C is consumption and ? ? is disposable income. The investment function is given by ? = 30 − 5? where I is investment and r is the interest rate. The demand for money is given by ?/? = 200 + 2? − ℎ? where M is the amount of money demanded, P is the price level,...
Suppose the current equilibrium point for the market of good for a closed economy is (200,...
Suppose the current equilibrium point for the market of good for a closed economy is (200, $100). Also we know the  ɛ = -2 and n = 1.5 at the equilibrium point. Suppose the economy is now open to trade. Let $110 Pw = $110 . a) What is the domestic price? b) What is the size of the export?
The input-output (consumption) matrix for a closed economy is given below. Solve the associated input- output...
The input-output (consumption) matrix for a closed economy is given below. Solve the associated input- output model. Use r if you need a variable in your answer. [0.07 0.05 0.27] [0.17 0.48 0.19] [0.76 0.47 0.54]
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT