In the Keynesian cross model, assume that the consumption function is given by C = 110 + 0.75(Y - T). Planned investment is 300; government purchases is 350. Assume a balanced budget. a. Graph planned expenditure as a function of income. b. What is the equilibrium level of income? c. If government purchases increase to 400, what is the new equilibrium income? What is the multiplier for government purchases? d. What level of government purchases is needed to achieve an income of 2,200? (Taxes remain unchanged.) e. What level of taxes is needed to achieve an income of 2,200? (Government purchases remain at 350.)
In the Keynesian cross model, assume that the consumption function is given by C = 110 + 0.75(Y - T). Planned investment is 300; government purchases is 350. Assume a balanced budget. a. Graph planned expenditure as a function of income. b. What is the equilibrium level of income? c. If government purchases increase to 400, what is the new equilibrium income? What is the multiplier for government purchases? d. What level of government purchases is needed to achieve an income of 2,200? (Taxes remain unchanged.) e. What level of taxes is needed to achieve an income of 2,200? (Government purchases remain at 350.)
Chapter19: The Keynesian Model In Action
Section: Chapter Questions
Problem 5SQP
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In the Keynesian cross model, assume that the consumption function is given by
C = 110 + 0.75(Y - T). Planned investment is 300; government purchases is 350. Assume a balanced budget.
a. Graph planned expenditure as a function of income.
b. What is the equilibrium level of income?
c. If government purchases increase to 400, what is the new equilibrium income? What is the multiplier for government purchases?
d. What level of government purchases is needed to achieve an income of 2,200? (Taxes remain unchanged.)
e. What level of taxes is needed to achieve an income of 2,200? (Government purchases remain at 350.)
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