For a closed economy – i.e. an economy in which there are no international transactions –...

For a closed economy – i.e. an economy in which there are no international transactions – GDP is $12 trillion, consumption is $7 trillion, taxes are $3 trillion, and the government runs a deficit of $1 trillion. (Assume transfer payments are zero.)

a) It follows that private saving is ________.

b) National saving is __________.

Expert Solution

Rahul Sunny answered 2 years ago

Suppose a closed economy (economy that does not engage in international trade) is described by the...

Suppose a closed economy (economy that does not engage in international trade) is described by the following table. Year Potential GDP Real GDP Price Level 1 $1600 billion $1600 billion 100 2 $1650 billion $1620 billion 109 a. What problem will occur in the economy in Year 2 if no policy is pursued? b. Describe the fiscal policy tools that could be used to combat the problem. Carefully explain all steps in the link between policy and outcomes. What impact...

Suppose a closed economy (economy that does not engage in international trade) is described by the...

Suppose a closed economy (economy that does not engage in international trade) is described by the following table. Year Potential GDP Real GDP Price Level 1 $1600 billion $1600 billion 100 2 $1650 billion $1620 billion 109 a. What problem will occur in the economy in Year 2 if no policy is pursued? b. Describe the fiscal policy tools that could be used to combat the problem. Carefully explain all steps in the link between policy and outcomes. What impact...

Suppose a closed economy (economy that does not engage in international trade) is described by the following table.

Suppose a closed economy (economy that does not engage in international trade) is described by the following table. Year Potential GDP Real GDP Price Level1 $1600 billion $1600 billion 100 2 $1650 billion $1620 billion 109 a. What problem will occur in the economy in Year 2 if no policy is pursued? b. Describe the fiscal policy tools that could be used to combat the problem. Carefully explain all steps in the link between policy and outcomes. What impact will this policy have on...

Suppose a closed economy (an economy that does not engage in international trade) is described by the following table.

Suppose a closed economy (an economy that does not engage in international trade) is described by the following table.YearPotential GDPReal GDPPrice Level1$1200 billion$1200 billion1002$1250 billion$1270 billion109(a) What problem will occur in the economy in Year 2 if no policy is pursued? (b) Describe the fiscal policy tools that could be used to combat the problem. Carefully explain all steps in the link between policy and outcomes. What impact will this policy have on the various components of the aggregate expenditures?...

In a closed economy, a government sees its role growing with the economy, i.e. GY=g0+g1Y, where...

In a closed economy, a government sees its role growing with the economy, i.e. GY=g0+g1Y, where g0> 0 and 0 <g1< 1. (a) Solve for the equilibrium level of income and derive the income multiplier. (b) Analyze the effects of an increase in the autonomous component of public spending on the economy when (i) wages and prices are fixed; (ii) wages and prices are flexible.

Consider a closed economy (no international trade) under a simple Keynesian model. Assume investment is a...

Consider a closed economy (no international trade) under a simple Keynesian model. Assume investment is a constant. Tax is a lump-sum that does not depend on income. If a government increases its expenditure by $1 but at the same time increases the lump-sum tax by $1. Will real output be increased or decreased, and by how much?

In an imaginary closed economy, the market for loanable funds is in equilibrium in which the...

In an imaginary closed economy, the market for loanable funds is in equilibrium in which the government is running a balanced budget. In equilibrium, GDP, consumption expenditure and government expenditure are $4,000 million, $2,500 million and $1,000 million, respectively. a. Calculate private saving, public saving, taxes and investment. b. In order to finance for additional expenditures in the future, suppose the government is running a budget deficit in which it raises fund through selling government bonds in the open market....

Suppose Hinterland has been a closed economy (meaning there is no immigration from foreign countries and no international trade)

Suppose Hinterland has been a closed economy (meaning there is no immigration from foreign countries and no international trade). The current labor force has 4 million skilled workers and 8 million unskilled workers. Both types of labor have perfectly inelastic supply curves, and the current skilled-unskilled wage ratio is 2.5. The elasticity of demand of skilled labor is -0.4, while the elasticity of demand of unskilled labor is -0.1. Suppose Hinterland allows a brief period of immigration, during which time...

. Consider the following model of an economy with no international trade, and in which the...

. Consider the following model of an economy with no international trade, and in which the price level is fixed: C = 70 + (11/12)∙DI I = 20 G = 30 Taxes = (1/11)∙GDP where C is consumption demand, DI is disposable income, I is planned investment, G is government purchases, and all whole numbers are in billions of dollars. a. Determine the equilibrium level of production (GDP) in this economy (show your work), and draw...

Consider a closed economy in which the depreciation rate is 10% per year, the rate of...

Consider a closed economy in which the depreciation rate is 10% per year, the rate of population increase is 2% per year, the rate of technological progress is 1% per year Andy the households save 30% of their income. Suppose the aggregate production function is; Y=f(K, AL)= 9K^4/5 (AL)^1/5 Where Y is output, K is capital, A is the level of technology and L is labor input. a) Derive the production function in per effective worker terms. b) Solve for...

Question

For a closed economy – i.e. an economy in which there are no international transactions –...

Solutions

Expert Solution

Related Solutions

Suppose a closed economy (economy that does not engage in international trade) is described by the...

Suppose a closed economy (economy that does not engage in international trade) is described by the...

Suppose a closed economy (economy that does not engage in international trade) is described by the following table.

Suppose a closed economy (an economy that does not engage in international trade) is described by the following table.

In a closed economy, a government sees its role growing with the economy, i.e. GY=g0+g1Y, where...

Consider a closed economy (no international trade) under a simple Keynesian model. Assume investment is a...

In an imaginary closed economy, the market for loanable funds is in equilibrium in which the...

Suppose Hinterland has been a closed economy (meaning there is no immigration from foreign countries and no international trade)

. Consider the following model of an economy with no international trade, and in which the...

Consider a closed economy in which the depreciation rate is 10% per year, the rate of...