Question

In: Economics

If a country has the following traits: y = 5k½marginal propensity to save = 0.4depreciation rate...

If a country has the following traits: y = 5k½marginal propensity to save = 0.4depreciation rate = 3%population growth rate = 5%

(a) What is the steady-state level of y?

(b) What is the steady-state level of c?

(c) What is the steady-state level of gross investment?

In the question above, if k began a period being 400, what would the amount of:

(a) depreciation taking place during that period?

(b) net investment taking place during that period?

Expert Solution

At steady state level of capital , growth in capital stock is equal to zero. Here, investment gets equal to net depreciation.

At steady state,

savings rate / (depreciation rate + population rate) = Steady state level of capital / Steady state level of output

0.4 /(0.03+0.05) = k / 5k

k = 625 units

y = 125 units

2. Consumption = Total output - Investment

= 125 - (0.4 125)

= 75 units

3. Gross investment = Saving rate output

= 0.4 125

= 50

If k = 400, then net depreciation = (Depreciation rate + population rate ) capital stock

= (0.03+0.05) 400

= 32

Output = 5k = 520 = 100 units

Net investment = Gross investment - Net depreciation

= ( Saving rate output )- 32

= 0.4 100 - 32

= 8 units

Rahul Sunny answered 1 year ago

1. If the marginal propensity to consume is 0.6, the marginal propensity to save is 0.4,...

1. If the marginal propensity to consume is 0.6, the marginal propensity to save is 0.4, and government spending increases by $2 billion at the same time taxes rise by $2 billion, equilibrium income will: rise by $2 billion. is the answer, I just dont know what steps to undertake to get the answer nor know what equation to use. 2. In the nation of Economia, the economy is over heating and there is danger of inflation. The chief economist...

Suppose that in your country, the marginal propensity to save equals 15 percent of disposable income,...

Suppose that in your country, the marginal propensity to save equals 15 percent of disposable income, when income is null, consumption of C = 150, government expenditure of G = 100 and fixed taxes = 80, and that investment of I = 50. Calculate the equilibrium level of GDP. Solve for a change in GDP following an increase in expenditure of 20 percent, financed by an increase of taxation of the same amount. What does it tell you about the...

1. What is the multiplier if the marginal propensity to consume (MPC) is 0.5? Calculate the marginal propensity to save (MPS)?

1. What is the multiplier if the marginal propensity to consume (MPC) is 0.5? Calculate the marginal propensity to save (MPS)?2. What is the multiplier if the MPS is 0.2? Calculate the MPC.3. As a percentage of GDP, savings accounts for a larger share of the economy in the country of Scania compared to the country of Amerigo. Which country is likely to have the larger multiplier? Explain.4. Assuming that the aggregate price level is constant, the interest rate is...

If the marginal propensity to consume is 0.9, the tax rate 0.35, and the propensity to...

If the marginal propensity to consume is 0.9, the tax rate 0.35, and the propensity to import 0.2, then the value of the multiplier is (to 3 decimal places):

In an economy with marginal propensity to save (MPS) of .4, what effect will an increase...

In an economy with marginal propensity to save (MPS) of .4, what effect will an increase of $100 in government spending have on equilibrium and what effect a tax cut of $100 will have on equilibrium.

. Complete the following: a. If the tax multiplier is -1, then the marginal propensity to...

. Complete the following: a. If the tax multiplier is -1, then the marginal propensity to save is _________ the marginal propensity to consume. b. If the government spending multiplier is 8, then the marginal propensity to save equals______. c. If the marginal propensity to consume is two times the marginal propensity to save, then the government spending multiplier equals _______. d. If the marginal propensity to save is 0.5, then the tax multiplier equals _______. e. If the marginal...

The nation of Maximus has a marginal propensity to consume of .90 and the government has...

The nation of Maximus has a marginal propensity to consume of .90 and the government has decreased taxes by a lump-sum amount of $1 billion. Assume there is no international trade or changes to the aggregate price level. a. What is the value of the tax multiplier in Maximus? b. By how much will real GDP change after the $1 billion decrease in taxes? c. If the government wanted to accomplish the same increase in real GDP you found in...

The Kenya National Bureau of statistics has made the following estimates for the Kenyan economy;-Marginal propensity...

The Kenya National Bureau of statistics has made the following estimates for the Kenyan economy;-Marginal propensity to consume (MPC) = 0.25, Investment (I) = 5500, Government spending (G) = 12000, Autonomous consumption (α) = 1500, Net Exports (X-M) = 3500 Y= C+ I + G + X-M C= α + βY Required;- i) Calculate the equilibrium level of National Income. ii) Calculate the equilibrium consumption and savings. iii) Compute a simple investment multiplier and interpret it

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.75, the tax rate...

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.75, the tax rate is 0.2, and the marginal propensity to import equals 0.3. Select one: a. 1.43 b. 1.6 c. 3.33 d. 4

5. Explain the effects of the following actions on equilibriumincome, assuming that the marginal propensity...

5. Explain the effects of the following actions on equilibrium income, assuming that the marginal propensity to consume is 0.8A. Government purchases rise by $40 billion.B. Taxes fall by $40 billion.