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- Refer to Figure 1. Injections = leakagesA) when income = zero.B) when consumption = saving.C) at equilibrium.D) when output = investment.Calculate the value of marginal propensity to save if savings changes by $315 and the income changes by $670Assume that in 2015, the following prevails in theRepublic of Nurd:Y = $200 G = $0C = $160 T = $0S = $40I (planned) = $30Assume that households consume 80 percent of their income, they save 20 percent of their income, MPC = 0.8,and MPS = 0.2. That is, C = 0.8Yd and S = 0.2Yd.a. Is the economy of Nurd in equilibrium? What is Nurd’sequilibrium level of income? What is likely to happen inthe coming months if the government takes no action?b. If $200 is the “full-employment” level of Y, what fiscal policy might the government follow if its goal is fullemployment?c. If the full-employment level of Y is $250, what fiscalpolicy might the government follow?d. Suppose Y = $200, C = $160, S = $40, and I = $40. IsNurd’s economy in equilibrium?e. Starting with the situation in part d, suppose the government starts spending $30 each year with no taxationand continues to spend $30 every period. If I remains
- If the marginal propensity to consume is 0.75, byhow much would government spending have to rise toincrease output by $1,000 billion? By how muchwould taxes need to decrease to increase output by$1,000 billion?Suppose that the marginal propensity to consume is dC/dy= 0.4 + (1 / sq. root of 3y + 10)(in billions of dollars) and that consumption is $9 billion when disposable income is $0. Find the nationalconsumption function C. Round numbers in your answer to two decimal places when appropriate.A country is in the midst of a recession with a real GDP estimated to be $1.8 million below potential GDP. The governement's policy analyss believe the current value of the marginal propensity to consume (MPC) is 0.90. (Please answer all parts) a. If the government wants real GDP to equal potential GDP, by how much should it increase governement spending? Alternatively, by how much should it reduce taxes? b. Suppose that during the recession people have become less confident and decide they will spend only 50% of any additional income. In this case, if the governement increases spending by the amount calculated in part A, will real GDP end up less than , greater than or equal to potential GDP? by how much? c. With the same decrese in consumer spending as described in part B, if the governement decreases taxes by the amount calculated in part A, will real GDP end up less than, greater than or equal topotential GDP? by how much? d. Why is it difficult for the governement to predict…
- TRUE OR FALSE The higher the responsiveness of income to interest rates the higher the expenditure multiplierAutonomous Spending: $1,000 Invest2, 000 Government Spending: $3, 000 Exports: $500 C1: .55 Tax Rate: .22Marginal Propensity to Import: .09 If Investment drops by 20%, and if the government decides not to spend, whatwould the new tax rate have to change to in order to offset the drop in Y?suppose that the government increases taxes and government purhcases by equal amounts.what happens to the interest rate and investment in response to this balanced - budget change? does your answer depend on the marginal propensity to consume?
- a.Calculate the saving schedule. b.Determine the marginal propensities to consume (MPC) and save (MPS). c.Determine the break-even income. d.What is the relationship between the MPC and the MPS?Elaborate on the difference between a binding and non-binding borrowing constraints and thetwo consumption functions that result.b. From the Intertemporal Choice Model, many theories (non-Keynesian theories ofConsumption) came into being. Using graphical and mathematical expressions, compareand contrast the following theories on consumption behaviours:i. Franco Modigliani: Life-Cycle Hypothesisii. Milton Friedman: Permanent-Income Hypothesisiii. Robert Hall: Random Walk Hypothesis3. An economy shows the following featuresConsumption, C = 50 + 0.9YdTax Revenue, T = 100Investment, I = 150 – 5iGovernment Expenditure, G = 100Money demand, L = 0.2Y – 10iMoney Supply, M = 100Exports, X = 20Imports, M = 10 + 0.1YN/BYd is the disposable incomeRequired,(a) Obtain the IS and LM equations of the economy(b) Find the equilibrium income and rate of interest(c) Find the balance of trade
