3. (Multiple Choice) If Ricardian Equivalence holds, what variable changes between the two equilibrium? a. The interest rate b. Consumption allocations c. Government expenditures d. Household savings e. Wages (assuming there is production)
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- 1. (a) The following equations describe an economy: C-100+ 0.75Yd I-50-25r T-G-50 Where C is aggregate consumption, Y is disposable income, I is aggregate investment. I is taxes, G is government purchases and r is the rate of interest. Derive the IS curve for the economy. Show the area of excess demand and excess supply in the goods market. (b) Draw the graph and explain the derivation of IS curve. 2. (a) Given the following data about the monetary sector of the economy: Ma -0.4Y-80r M₁ - 1200 million Where, Ma is demand for money, Y is the level of income, r is the rate of interest and M, is the supply of money. Derive the equation for LM curve and give the economic interpretation of this curve. Show the excess demand and excess supply in the money market. (b) Draw the graph and explain the derivation of LM curve. 3. Consider the following economy: C-100+ 0.8Yd I-50-25, G-T-50 M' P -200 M₁-Y-25r 1. Calculate the IS and LM curves. 2. Calculate the equilibrium levels of output (national…4. Which one of the following statements concerning the relation between the expenditure and income approaches is correct? A. The expenditure approach to measuring economic activity results in a higher figure than does the income approach. (over please) 3 B. The expenditure approach to measuring economic activity results in a lower figure than that of the income approach. C. The two approaches must be equal, because the value of a nation's output must be distributed among all its costs. D. There is no relation between the two, because each measure different things.3. Complete the accompanying table. (a) What is the break-even level of income? How is it possible for households to dissave at very low income levels? Level of output and income (GDP = DI) Consumption Saving АРС APS MPC MPS $205 2$ -$5 230 255 5 280 10 305 15 330 20 355 25 380 30 405 35
- (d) Suppose government spending increases by some amount AGo to become Go+AGo. Show the change in Y and C as a response to this increase in spending.3. Complete the accompanying table. (a) What is the break-even level of income? How is it possible for households to dissave at very low income levels? Level of output and income (GDP = DI) Consumption Saving MPS АРС APS MPC S182 -$5 207 232 257 10 282 15 307 20 332 25 357 30 382 35(11) The slope of the consumption function is the __________________________ __________________________ __________________________.
- (Use for a and b)Suppose the interest on the debt was $700 billion. If interest is paid domestically, 90% will be spent domestically (the remainder is spent on foreign goods). If interest is paid to the foreign sector, only 10% is spent here (the remainder is spent in foreign countries). Every dollar collected in taxes to pay the interest causes domestic spending to fall 90 cents. The spending multiplier is 2. a) What is the net impact on GDP if all interest is paid domestically? b) What is the net impact on GDP if 20% of the interest is paid to the foreign sector? c)What are the desirable qualities of an efficient commodity money?11. Assume that Government Spending (G) decreases by 25, what will be the change in Output (Y) if (a) MPC 0.8. (b) MPC-0.75. (c) MPS=0.4. (d) MPS=0.3.3. (3.5 points) Assume that when' aggregate income (ie, aggregate output, or Y) increases by $120 million in the country of Intrometida aggregate consumption (C) there increases by $24 million. a. Using the pieces of information just given, find the marginal propensity to consume (MPC) for the economy of Intrometidar What is the marginal propensity to save (MPS) Show your work. Express your answers as either fractions or the appropriate decimals. MPC MPS
- (4. From 2009 to 2014, Eastlandia experienced large fluc- tuations in both aggregate consumer spending and disposable income, but wealth, the interest rate, and expected future disposable income did not change. The accompanying table shows the level of aggregate con- sumer spending and disposable income in millions of dollars for each of these years. Use this information to answer the following questions. Disposable income (millions of dollars) Consumer spending (millions of dollars) Year 2009 $100 $180 2010 350 380 2011 300 340 2012 400 420 2013 375 400 2014 500 500 a. Plot the aggregate consumption function for Eastlandia. b. What is the marginal propensity to consume? What is the marginal propensity to save? c. What is the aggregate consumption function?Question 23 esc K ✈1 moving to 1 The total income earned by residents of an economy is known as O gross national product O private disposable income O gross domestic product O national income none of the above A Moving to another question will save this response. O Type here to search ? Q A 12 W 13 # D LA Ai R % 5 16 10 1 hp2. Suppose a nation's maximum GDP (with 0 percent unemployment) is $25 trillion. a. Assuming that full employment occurs when there is 4 percent unemployment, how much is full employment GDP? b If equilibrium GDP is $20 trillion, how far from full employment GDP is this economy?
