Question

In: Economics

Consider an economy with the following characteristics: · Consumption function is C = 200 + 0.8Y;...

Consider an economy with the following characteristics:

· Consumption function is C = 200 + 0.8Y;

· Planned investment: I = 50;

· Government expenditure: G = 50;

· Exports of the country: X = 20

· The import function: M = 10 + 0.1Y.

· Assume there are no transfer payments and no autonomous taxes.

All variables are in billions of dollars. C is consumption expenditure; Y is real GDP; G is government purchases of goods and services; I is planned investment expenditure; X is exports, and M is imports.

a. Write the aggregate expenditure function and calculate the value of the equilibrium level of income in the economy.

b. What is the value of consumption expenditure in the economy?

c. Define the concept of the multiplier. Calculate the size of the effect on the economy if the covid 19 shutdown reduces Consumption to C = 150 +0.8Y and planned Investment falls by $20 billion.

Please provide detail answers to all parts

Solutions

Expert Solution


Related Solutions

Suppose that the consumption function is given by C = 600 + 0.8Y.
Suppose that the consumption function is given by C = 600 + 0.8Y. This implies that if people’s disposable income increases by $100, the consumption will rise by $________, and the saving will rise by $________.80; 4080; 20800; 400800; 200
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...
Consider an economy with the following components of aggregate expenditure: Consumption function: C=20 + 0.8YD Investment...
Consider an economy with the following components of aggregate expenditure: Consumption function: C=20 + 0.8YD Investment function: I = 30 Government expenditures: G = 8 Export function: X= 4 Import function: M=2 + 0.2Y Tax rate, t = 0.2 or 20%. Answer the following question. What is the marginal propensity to consume in this economy? What is the equation of the aggregate expenditure function in this economy? Determine the size of the autonomous expenditure multiplier. Determine the size of the...
Given the following information about a closed economy. Consumption C=100+0.8Y Investment I = 1200-30r where r...
Given the following information about a closed economy. Consumption C=100+0.8Y Investment I = 1200-30r where r is the interest rate Y is Income. The precautionary and speculative demand for money is as follows. MD1=0.25Y MD2 = 1375-25r Money supply Ms =2500 a) find the equilibrium values of Y and​ r. b) Assume that a budget is now introduced in to the economy and that consumption is given by C= 100+0.75Yd Yd=Y-T T=20+0.2Y if government expenditure G = 935 i) find...
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...
Consider the following Keynesian Consumption Function: C = C¯ + cY (1) where, C¯ = 1000...
Consider the following Keynesian Consumption Function: C = C¯ + cY (1) where, C¯ = 1000 and c = 0.8. i.Draw a figure corresponding to Equation 1 and call that Figure 1. ii. Define MPC. What is the value of MPC in Equation 1? Interpret your answer. iii. Now assume that Y = 50000. How much will be Consumption (C)? What is the value of APC? Can you show the APC in Figure 1? iv. What is the Consumption Puzzle?...
Consider the following Keynesian economy. Consumption function: Ct = 20 + 0.7(Y-T) Investment Function: It =...
Consider the following Keynesian economy. Consumption function: Ct = 20 + 0.7(Y-T) Investment Function: It = 42 −100r Government Spending: Gt = 50 Tax Collections: Tt = 50 Real Money Demand Function: (Mt/Pt) = 6Yt − 2000Rt Money Supply: = Mt = 2800 Price Level: Pt = 2 i. Derive the equation for the IS curve expressing r as a function of Y only. For interest rates ranging from 0-8, graph the IS curve. ii. Derive the equation for the...
25) Consider the following one-period, closed-economy model. Utility function over consumption (C) and leisure (L) U(C,L)...
25) Consider the following one-period, closed-economy model. Utility function over consumption (C) and leisure (L) U(C,L) = C 1/2 L 1/2 Total hours: H = 40 Labour hours: N S = H – L Government expenditure = 30 Lump-sum tax = T Production function: Y = zN D Total factor productivity: z = 2 The representative consumer maximizes utility, the representative firm maximizes profit, and the government balances budget. Suppose there is an increase in total factor productivity, z, to...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT