Suppose that there is an increase in government spending of $50 billion and individuals spend 75% of any extra income on domestically produced goods. Find the overall impact on the economy according to the Keynesian multiplier model.
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Q: MPC = .75 What is the value of the multiplier?
A: MPC=0.75 MPS=1-0.75 =0.25
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A: Formula: Multiplier = 1/(1-MPC) MPC = 1- MPS
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A: Answer to the last two parts are given:
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A: Given : C=500 + 0.80Y I = 100
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A: Option (C).
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A: here we calculate the increase in income by using the given information so calculation as follow-
Q: Keynesian cross model, assume that the consumption function
A:
Q: ) Given the following simple Keynesian Model: Y = C + I + G + X-M, where Consumption schedule is…
A: Y = C + I + G + X-M Y = 100 + 0.75Y + 50 + 100 + 20 Y = 270 + 0.75 Y 0.25 Y = 270 Y = 1080
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Q: If a $100 billion increase in government spending results in a $500 billion increase in real GDP,…
A: Answer to the question is as follows :
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Q: ) increase by $160.
A: Answer Disposable income increased by $ 200 C = 400+ 0.8Yd de = 0.8 dYd Now, dyd = 200 So, de = 160
Suppose that there is an increase in government spending of $50 billion and individuals spend 75% of any extra income on domestically produced goods. Find the overall impact on the economy according to the Keynesian multiplier model.
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- The multiplier in the Keynesian model equals:Use the Keynesian Model to answer this set of questions. Suppose that in the economy under consideration the consumption function can be written as C=200+.8(Y-T). Furthermore, you know that taxes are autonomous and equal to $10. Now, suppose that investment spending is equal to $50 at every level of disposable income and government spending is constant and equal to $100 at every level of disposable income, suppose that (X-M) is constant and equal to $20 at every level of disposable income. (a)Draw a graph of the consumption function with respect to disposable income. Measure/show consumption spending on the vertical axis and disposable income on the horizontal axis (b) Calculate equilibrium national income Y, from the information given. (c) From the information given above is the government running a deficit or surplus budget? Explain why. (d) Full employment output in this economy (Y) is equal to $2000 what do you predict is happening to inventories if the full employment level of…In a closed economy Keynesian Cross framework, show how a decline in investment will lead to a fall in income. Explain the role of the consumption function and the multiplier in this process.
- In the Keynesian cross model, assume that the consumption function is given by C = 100 + 0.75(Y - T). If government spending increases by AG = 100, what is the increase in output? How does your answer change when the spending increase is financed by an equal increase in taxes?Use the Keynesian cross model to predict the impact of an increase in government purchases on equilibrium GDP. State the direction of the change and give a formula for the size of the impact. An increase in taxes shifts the planned expenditure function downward. The change in income is given by AY= ΔΥ= -MPC 1-MPC An increase taxes shifts the planned expenditure function upward. The change in income is given by -MPC 1-MPC AY= XAT An increase in taxes shifts the planned expenditure function inward. The change in income is given by AY= 1 1-MPC XAT 1 1-MPC The direction of the shift is undetermined without knowing the slope of the PE function. The change in income is given by XAT XATWhich of the following statements about the Keynesian framework are accurate? a)Keynes posited a linear Consumption function C=Ca + mpcYd, where C is total desired consumption spending, Ca is consumption spending independent of income and Yd is disposable income and mpc is marginal propensity to consume b) In the C=Ca +mpcYd the Ca is the vertical axis intercept parameter, and mpc is the slope parameter. c) Keynes also posited that Investment spending was a function of expectations and the interest rate. d) In the Keynesian investment function the firm's estimated profitability of potential investment projects were determined by expectations of future sales and costs. e) Businesses would invest in those projects whose estimated profitability was greater than the market rate of interest. f) If the firms don't have the cash, they will borrow funds and earn the difference between the rate of return on the project and the lower market rate of interest. If they have more cash than needed…
- According to the multiplier concept when there is a change in any one of the components of total expenditures (C, I, G, or X-IM), a multiple impact upon: a) the rate of unemployment will occur. b) saving in the economy will occur. c) household expenditures will occur. d) income will occur.The multiplier effect represents Keynes’s insight that:(a) households would rather spend than save.(b) businesses prefer to be in the expansion phase of the business cycle.(c) an increase in spending will increase equilibrium income by more than the initial increase in spending.(d) an increase in equilibrium income will increase the marginal propensity to consume.In an economy, marginal propensity to consume (MPC) is 0.75 where Keynesian model works. Now, if government increases both its expenditure and taxes by 1000, then Income increases by 4000; Income increases by 3000; Income increases by 1000; Income do not change?
- In the Keynesian cross model, assume that the consumption function is given by C = 20 + 0.8(Y- T). Planned investment is 200; government purchases and taxes are both 400. There is no foreign trade. An economist has claimed that the full employment level of output is 2,400. How much should the government expenditure or taxes rise or fall to achieve full employment?The consumption and saving functions in the Keynesian model Suppose we observe that a person's disposable income (DI) is 50,000 in 2019 and 63,000 in 2020. Suppose we observe that this person's consumption (C) is 47,000 in 2019 and 58,700 in 2020. Assume that this person's consumption obeys the Keynesian consumption function, so that C = A + MPC*DI. Finally, assume that A and MPC are unchanged between 2019 and 2020. (a) Calculate the values of A and MPC for this consumer, and graph the consumption function. (Hint: subtract the C function in 2019 from the C function of 2020). (b) In general, saving is given by the formula S = DI - C. Calculate this person's saving in 2019 and 2020. Assuming that this person's wealth (net worth) on January 1, 2019 was 80,000, what is their wealth on January 1, 2020? on January 1, 2021? (c) In general, if consumption is given by the function C = A + MPC*DI, then saving will obey the saving function S = -A + (1 - MPC)*DI. Plot the saving function…In a closed economy Keynesian-cross framework, I = 20, c0 = 20, and MPC = 0.6. a) Show in a diagram how a halving of investment will lead to a fall in income. b) Show the same mathematically. c) Explain in words includes the role of (i) the multiplier and (ii) inventories in this