Consider an economy in which government purchases, taxes, and net exports are all zero. The consumption function is C = 300 +.75Y and investment spending (I) depends on the rate of interest (r) in the following way: I = 1,000 - 100r Find the equilibrium GDP if the Fed makes the rate of interest (a) 2 percent (r=0.02), (b) 5 percent, and (c) 10 percent.
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5.Consider an economy in which government purchases, taxes, and net exports are all zero. The consumption function is C = 300 +.75Y and investment spending (I) depends on the rate of interest (r) in the following way:
I = 1,000 - 100r
Find the equilibrium
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- Assume a closed economy in which disposable income starts at 1,000 and increases by 500; consumption starts at 1,100 and increases by 300; investment spending is 1,000 and government spending is 500. 1. The marginal propensity to consume (MPC) is equal to: 0.5 0.6 0.7 6 2. The multiplier is: 0.25 2 2.5 3 3.The consumption equation is: C = 500 + 0.6DI C = 500 + 0.5DI C = 100 + 0.75DI C = 100 + 0.6DI 4. Let ∆I = 1,000. What is the new equilibrium GDP" 7,000 7,500 2,000 8,500You are given data on the following variables in an economy: Item Value Government spending 300 Planned investment 200 Net exports 50 Autonomous taxes 250 Income tax rate 0.1 Marginal propensity to consume 0.5 Consumption (C) is 600 when income (Y) is equal to 1500. a. Solve for autonomous consumption and equilibrium level of output if there is an income tax t=0.2. b. In the economy with an income tax of 10%, what is the budget balance of the government? c. Briefly explain the function of the multiplier as part of KeynesianThe government decreases current taxes, while holding government spending in the present and the future constant. Using diagrams, determine the equilibrium effects on consumption, investment, the real interest rate, aggregate output, employment, and the real wage. What is the multiplier, and how does it differ from the government expenditure multiplier? Now suppose that there are credit market imperfections in the market for consumer credit, for example due to asymmetric information in the credit market. Repeat part (a), and explain any differences in your answers in parts (a) and (b)
- Consider an economy in which taxes, planned investment, government spending on goods and services, and net exports are autonomous, but consumption and planned investment change as the interest rate changes. You are given the following information concerning autonomous consumption, the marginal propensity to consume, planned investment, government purchases of goods and services, and net exports: Ca = 1,500 – 20r, c = 0.6; I= 2,450 – 60r; G= 1,980; NX =- 200; T = 1,750. a. Compute the value of the marginal propensity to save. b. Compute the amounts of autonomous planned spending, Ap, when the interest rate equals 0, 2, 4, and 6. c. Compute the equilibrium levels of income when the interest rate equals 0, 2, 4, and 6. Graph the IS curve. d. Suppose that policymakers decide to reduce the number of troops in Afghanistan, which results in a reduction of government spending of $80 billion. Compute the new amounts of autonomous spending, Ap, when the interest rate equals 0, 2, 4, and 6. e.…The economy of country B is characterized by the following: • Aggregate output: Y • Investment spending: I= 80 • Government spending: G= 90 • Net taxation: T= - 10 + 0.1Y • Disposable income: Y=Y -T • Consumption function: C= 30 +0.9Yd The equilibrium output for this economy is 1100 Round off your answer to two decimal places. If the marginal propensity to save (MPS) increases to 0.15, the equilibrium output will be Round off your answer to two decimal places.Consider an economy located near the Indian Ocean where the main industries are agriculture and tourism. Policymakers and economic advisors have determined that consumers' spending behavior is described by the equation: C = 255 + 0.75DI while the domestic investment spending behavior by firms is fixed at $250 billion. Currently, the population is 250 million, the labor force participation rate is 68 percent, and the unemployment rate is 4 percent. The policymakers and economic advisors have also determined that the short run aggregate supply of goods and services in the economy is described by the equation Y = Ypot + 75(P - Pe), while the potential level of real GDP is $2075 billion and the expected price level at full employment, Pe, is 115. Net taxes is described by the equation: T = 120 + 0.2Y while the government spending is fixed at $500 billion. Trading occurs mostly with neighboring economies and currently total imports is $300 billion while total exports is $200 billion.…
- Consider an economy located near the Indian Ocean where the main industries are agriculture and tourism. Policymakers and economic advisors have determined that consumers' spending behavior is described by the equation: C = 255 + 0.75DI while the domestic investment spending behavior by firms is fixed at $250 billion. Currently, the population is 250 million, the labor force participation rate is 68 percent, and the unemployment rate is 4 percent. The policymakers and economic advisors have also determined that the short run aggregate supply of goods and services in the economy is described by the equation Y = Ypot + 75(P - Pe), while the potential level of real GDP is $2075 billion and the expected price level at full employment, Pe, is 115. Net taxes is described by the equation: T = 120 +0.2Y while the government spending is fixed at $500 billion. Trading occurs mostly with neighboring economies and currently total imports is $300 billion while total exports is $200 billion.…Question: Given the following model for an economy C = 100 + 0.8Yd G = 800 T = 500 I = 200 a) Calculate the level of savings when the economy is in equilibrium. b) Find government spending multiplier. c) Find the new equilibrium level of output if the investment is increased by 100 (ΔI = 100). d) Find Tax multiplier. e) Find the new level of output if the lump-sum tax is increased by 100 (ΔT = 100). f) Find the new level of output if the government spending is increased by 100 and this government expenditure increase is financed by the same amount of increase in lump-sum taxes (ΔG = ΔT = 100).3. Answer the following numerical questions about the IS-FX model. a. The consumption function is C = 1.5 + 0.5(Y – T). What is the marginal propensity to consume? What is the marginal propensity to save? b. The trade balance is TB = 5(1 – 1/E) – 0.2(Y – 8). What is the marginal propensity to consume foreign goods? What is the marginal propensity to consume home goods? c. The investment function is I = 3 – 10i. What is investment when the interest rate i is equal to 5%? d. Assume government spending is G. Add up the four components of demand and write down the expression for D. e. Assume forex market equilibrium is given by I = (1/E – 1) + 0.15, where the two foreign return terms on the right are expected depreciation and the foreign interest rate. What is the foreign interest rate? What is the expected future exchange rate?
- Assume taxes are zero and an economy has a consumption function of C = 0.80 (Yd) + $879.06. How much savings take place if disposable income is equal to 3,258.02? Round your answer to two digits after the decimal and include a negative sign if you find negative savings which is borrowing.4.5 You are given the following data concerning Freedonia, a legendary country: (1) Consumption function: C = 200 + 0.8Y (2) Investment function: I = 100 (3) AE = C + I (4) AE = Y a. What is the marginal propensity to consume in Freedonia, and what is the marginal propensity to save? b. Graph equations (3) and (4) and solve for equilibrium income. c. Suppose equation (2) is changed to (2´) I = 110. What is the new equilibrium level of income? By how much does the $10 increase in planned investment change equilib- rium income? What is the value of the multiplier? d. Calculate the saving function for Freedonia. Plot this sav- ing function on a graph with equation (2). Explain why the equilibrium income in this graph must be the same as in part b.Consider an economy with no government, imports, or exports, and with fixed prices and interest rates. Let C = 150 + 0.60Y and I = 50. 8. What is the value of the marginal propensity to consume? * 0.5 0.7 0.6 0.9