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- 1 Fully develop (mathematically and graphically) the Keynesian Cross (Expenditures=Output) model. Be explicit regarding what variables are endogenous and what variables are exogenous.11. Assuming a Marginal Propensity to Save (MPS) of 20% or 0.20, use the Keynesian Multiplier to determine the additional amount of government spending required.The economy of Newland is in short-run macroeconomic equilibrium. The current real output is $400 billion, and the full employment output is $500 billion. The marginal propensity to consume is 0.8. (a) Is the economy experiencing a recessionary output gap or an inflationary output gap? Explain. (b) Assume Newland’s government is considering taking action to close the output gap identified in part (a). (i) Calculate the minimum change and indicate the direction of change in government spending required to shift the aggregate demand curve to close the output gap. Show your work. (ii) If instead Newland’s government changes income taxes without changing government spending, calculate the minimum change and indicate the direction of change in income taxes required to shift the aggregate demand curve to close the output gap. Show your work. (c) Which fiscal policy action, changing government spending or changing income taxes, is more effective in closing the output gap? Explain. (d)…
- 18 - : If aggregate demand increases in an economy while aggregate demand is constant in the short run, which of the following statements is correct for the new equilibrium point?A) price decreases and national income increasesB) price rises national income risesC) price increases and national income does not changeD) price goes up and national income goes downE) price decreases and national income decreases.19 - : In which of the following expressions is the equation of change given correctly?A) MV=VK B) MT=PV C) MV=PT D) MP=VY E) MV=PThe economy is described by the following functions: C = 110+0.8YD Tx = 20 Tr = 40 I = 70 G = 80 Nx = 30 1) Find the multiplier associated with government purchases. 2) Suppose government purchases increase by 20. By how much would the equilibrium output increase? 3) Illustrate change in government purchases on the Keynesian Cross diagram.Assuming that policy makers determine that a 500 billion increase in AD is needed to stabalize the economy. How much of an increase in governemnt spending would be required to achieve this. (note: the mpc=.80) lower taxes by 100 bn increase the money supply by 500bn raise spending by 100bn raise spending by 500bn
- 1. Construct your Keynesian General Equilibrium model in an open economy with government. 2. Make your own assumptions and functions. Give your own numbers. And 3. calculate equilibrium income by two methods. a) One from writing the model and solving the model, b) secondly from all injections should be equal to all leakages. c) Calculate all multipliers and expand your model to show how these multipliers are used.Consider the Keynesian Liquidity Constrained consumer (LCC). • (viii) What is the marginal propensity to consume out of temporary income? What does it depend on? (ix) What is the marginal propensity to consume out of permanent income? Does it depend on the same factors you mentioned in the previous question?(13) In the Keynesian Cross model, AE = Y is known as the __________________________ __________________________.
- The economy is experiencing a $225 million inflationary gap. If the government decided to solve this macroeconomic disequilibrium using a change in taxes, would you recommend an increase or decrease in taxes? If the MPC =0.9, what magnitude of tax change would be appropriate? 1) The economy is experiencing a recessionary gap of $30 billion. If the MPC=0.75, what government spending stimulus would you recommend to move the economy back to full employment? If the MPC=0.6629 When the economy is in Keynesian macroeconomic equilibrium, planned investment is greater than actual investment Select one: a. False b. TrueExplain, using the Keynesian approach to measuring aggregate demand, the economic impact that a discovery of a precious resource such as oil will have on aggregate spending and total production (income) for an economy. Kindly answer the question.. Asap