Apply the classical theory. Consider a hypothetical economy described below: Y=C+I+G C = 50+cY - T I = 300 - 20r Y = 2,000 T = 900 G = 1,500 c = 0.6 where Y is output, C is consumption, I is investment, G is government purchases, T' is taxes, and r is real interest rate in percent. b) Find the equilibrium interest rate. (.. c) Suppose taxes are reduced by 80. First, calculate private saving, public saving, and national saving. Second, find the new equilibrium interest rate. Third, draw a graph that shows the change in the equilibrium. (¯¯ ----- d) Instead of reducing taxes by 80, suppose government purchases are increased by 80. First, calculate private saving, public saving, and national saving. Second, find the new equilibrium interest rate. Third, draw a graph that shows the change in the equilibrium. ( e) Why is the change in national saving larger in (d) than in (c) even if the magnitude of the change in fiscal policy in (c) and (d) are the same?

Apply the classical theory. Consider a hypothetical economy described below: Y=C+I+G C = 50+cY - T I = 300 - 20r Y = 2,000 T = 900 G = 1,500 c = 0.6 where Y is output, C is consumption, I is investment, G is government purchases, T' is taxes, and r is real interest rate in percent. b) Find the equilibrium interest rate. (.. c) Suppose taxes are reduced by 80. First, calculate private saving, public saving, and national saving. Second, find the new equilibrium interest rate. Third, draw a graph that shows the change in the equilibrium. (¯¯ ----- d) Instead of reducing taxes by 80, suppose government purchases are increased by 80. First, calculate private saving, public saving, and national saving. Second, find the new equilibrium interest rate. Third, draw a graph that shows the change in the equilibrium. ( e) Why is the change in national saving larger in (d) than in (c) even if the magnitude of the change in fiscal policy in (c) and (d) are the same?

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 4TY

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4. Apply the classical theory. Consider a hypothetical economy described below: Y=C+I+G C = 50+cY - T I = 300 - 20r Y = 2,000 T = 900 G = 1,500 c = 0.6 where Y is output, C is consumption, I is investment, G is government purchases, Tis taxes, and r is real interest rate in percent. a) Calculate private saving, public saving, and national saving.
3) In the macroeconomic model below, Y is aggregate output, C is aggregate consump- tion, Io is aggregate investment, Go is government spending, T is the total amount of taxes collected by the government, and t is income tax rate. The variables Y, C, and I are endogenous, Go, Io, and t are exogenous, and a, b, and k are parameters. Y=C+ Io + Go C=a+b(Y-T) T=k+tY (a > 0,6€ (0,1)) (k>0, t€ (0,1)) Calculate the determinant of the coefficient matrix A associated with this system of equations. The determinant of the coefficient matrix A is: 1-b.+ bt a) A b) A-1-b-bt + a c) |A|=b+t d) A1+a+b-t e) |A| =Go+b+t f) A-Io-b+t 8) A = Go + Io +b-t
10. Consider a one-period economy which experiences the destruction of some of the nation's capital stock (say through a hurricane is de- stroyed). How should this effect equilibrium, consumption, output and labor supply? Now, let's say the government tries to offset some of the declines in capital on output and hours worked by increasing govern- ment spending. What is the likely outcome of this policy intervention in terms of consumption?
QUESTION 2 Consider the closed-economy market-clearing model. Assume that the marginal propensity to consume is 0.8. Tax revenue decreases by $5 billion, while output and government spending remain the same (a) Calculate the dollar change in consumption. (b) Calculate the dollar change in national saving. (c) Does the equilibrium real interest rate increase, decrease, or stay the same? n toolhar nress ALT+F10 (PC) or ALT+FN+F10 (Mac).
Consider an economy described by the following equations:Y=C + I +GY=7,000G=4000T=2,000C=150+0.75(Y-T)I=1,000-50rb. Calculate the equilibrium interest rate. c. Now suppose the G rises by 1,000. Compute private saving, public saving, andnational saving.d. Calculate the new equilibrium interest rate.For these 3 questions please only show the graphical response.
Economics PIODiem set is dde OIT AprTO 1. Let the following equations characterize the economy (note the addition of a tax rate on output): Y = 500 C = 60 + 0.8(Y-T) |= 30 - r G = 100 T = 0.4Y a) Calculate national saving, private saving, and public saving. b) Obtain the mathematical expression for the AD in this particular economy. Draw the graph. c) Determine the equilibrium interest rate (you can use the loanable funds market). Draw the graph for the lonable funds market. d) If Government spending increases to 120, what is the effect on income? Draw the new equilibrium in a graph (old and new in same graph).
4. Consider a classical economy described as follows: Y = LEK, where L is the amount of labor and K is the amount of capital. The economy has 10,000 units of labor and 10,000 units of capital. Consumption (C): 5,020-100r, Investment (I): 2,000-100r, Taxes (T): 2,500, Government Purchases (G) :3,000 a. Compute the total production and find the equilibrium interest rate. b. Compute private saving, government saving, and national saving. c. Now suppose that G is reduced by 10. Find the new equilibrium interest rate. What happens to consumption, private saving, government saving, national saving and investment? 5. An economy has a monetary base of 100$ bills. People hold equal amounts of currency and demand deposits. Banks has 20% of deposits as reserves. a. What is the money multiplier? Compute the money supply. b. The central bank decides to increase the money supply by 10%. How much should it increase the monetary base?
3. Suppose the incoming Biden administration permanently increases taxes and government purchases by equal amounts. a. What will be the impact (if any) on output in the short run? b. What will be the impact on the economy's normal real interest rate (r*) and normal investment (I*, which is the same as normal saving, S*)?
3. Use the neoclassical theory of investment to analyze using the model and the graphs how these events might affect the cost of capital, price of capital and investment to (use graphs and theory) a) Higher inflation b) A decrease in the level of employment c) An increase in the corporate income tax d) A deterioration of the part of capital stock in a natural disaster.
Consider an economy in the long run with real GDP equal to the level of potential output, Y*. a. Explain the slopes of the investment demand curve and the national saving curve. Why is the investment demand curve downward sloping? (Select all that apply.) A. Because a fall in the real interest rate decreases the opportunity cost of investment B. Because an increase in the interest rate leads households to increase their current consumption C. Because an increase in the interest rate leads households to reduce their current consumption D. Because a fall in the real interest rate increases the opportunity cost of investment E. Because an decrease in the interest rate leads households to reduce their current consumption F. Because a rise in the real interest rate increases the opportunity cost of investment G. Because an decrease in the interest rate leads households to increase their current consumption H. Because a rise in the real interest rate decreases the opportunity cost of…
2) The below five graphs show the development of key macroeconomic variables over the scope of three years in a certain country. Use them to draw an IS-LM-PC graph that captures the development in this country. Explain carefully what has happened. G Y t 3) China currently (2016) has a household saving rate of about 36 %. It has never been below 27 % in the last 30 years. What role do you think this high saving rate has for China's economic success? It has been argued that the low standard of living in many less developed countries depend on their poor institutions. Explain carefully what kind of "institutions" this argument refers to. 4) 5) The Swedish Fiscal Policy Council discusses public debt policy in a low interest environment in their latest report. The argue that "there are strong arguments in favour of low public debt despite low interest rates. For private operators, it may be rational to increase debt in a low interest rate climate, but this is not necessarily the case for…
1.11 If desired investment exceeds actual investment, then…a) The economy is in a recession.b) Inventories are less than the desired level.c) Inventories are accumulating beyond the desired levels.d) Cyclical unemployment exists. 1.12 Read the following extract and answer the question that follows. Women’s empowerment movement eyes 40% of government spending accreditation…Last year the South African government affirmed its support for women-owned businesses as part of its commitment to ensuring that gender equality in Africa’s most advanced economy was achieved. President Cyril Ramaphosa said then: “We are going to drive women’s economic inclusion through public procurement. We have set the target of ensuring that 40% of goods and services procured by public entities are procured from women-owned business.” Source: https://www.news24.com/citypress/news/womens-empowerment-movement-eyes-40-of-government-spending-20210819The above decision by the South African government is an example…