According to the baseline multiplier model, aggregate consumption is a function C = co +cqY of aggregate income Y. The term CO represents The impact of the general price level. O The effects of investment and government spending which are summarised in a reduced form way in this model. O Variables that affect consumption levels (primarily) of households engaging in consumption smoothing behaviour, such as permanent income, the target level of savings and expectations over future income. O The consumption level when output equals 0.
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Q: Construct the multiplier model using the consumption function C = 100 + 0.80Y and an investment…
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A: Disclaimer :- As you posted multiple questions we are supposed to solve one question only which is…
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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: onsider the following macroeconomy. All amounts are in millions (m.) of $: C = 750 + 0.8 YD…
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Q: Assume in Macroland, MPC = 0.8, and autonomous consumption = $2000. Planned investment = $5000, and…
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Q: (Building IS–LM Model) In the Keynesian cross, assume that the consumption function is given by C =…
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Q: Suppose that investment demand increases by $100. Assume that households have a marginal propensity…
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Q: n the Keynesian cross, assume that the consumption function is given by C = 200 + 0.75 (Y - T).…
A: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and…
Q: Assume that an economy is characterized by the following equations: C = 100 + 0.5(Y – T) T = 100 G =…
A: We are going to calculate equilibrium Output and interest rate as well as multipliers to answer this…
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- We again assume asimple closed economy with GDP of 100 and:c0(autonomous consumption) = 20c1 (marginal propensity to consume) = 0.6I (investment) = 20.a) Now assume that c0falls by 5 (i.e. 5% of GDP), i.e. for any given level of output,consumption will fall by 5. Show the implied fall in the AD function in yourdiagram and show that output will fall by more than 5.b) Show that the multiplier is equal to 2.5, and hence that, in the new equilibrium,output will have fallen by 12.5 (i.e. by 12.5%)c) How big would the impact be if, say, c1 = 0.4 or c1 = 0.8? Explain the difference.in a closed economy with no government, where aggregate demand is determinedby autonomous consumption, investment (which is independent of output), and themarginal propensity to consume.a) Given that autonomous consumption is 20, investment is also 20, and the marginalpropensity to consume is 0.6, write out an equation for aggregate demand (AD) in thiseconomy. b) Given this aggregate demand equation, and the equilibrium equation Y = AD, usealgebra to find the equilibrium level of Y. c) Draw a diagram with output (Y) on the x-axis and aggregate demand (AD) on the yaxis. Draw two lines on this diagram: (i) Y = AD, and (ii) the aggregate demandfunction from part (a). Label the intercept of the AD line, and the point where the twolines intersect, with numerical values. (3 marks)d) Suppose that the marginal propensity to consume falls from 0.6 to 0.5. What wouldthe new equilibrium level of Y be? Illustrate your answer in the diagram you drew forpart (c). (2 marks)e) Calculate the value of…Q.1.14 In the Keynesian model, what is the most important determinant of ahousehold’s consumption?(a) Disposable income.(b) Total wealth.(c) The number of persons in the household.(d) Its’ net wealth. Q.1.15 Induced consumption is: (a) the part of consumption which is independent of the level of income.(b) the minimum level of consumption that is financed from sources otherthan income.(c) The maximum level of consumption that is financed from sources otherthan income.(d) shown by the slope of the consumption function.Q.1.16 In the Keynesian model, an introduction of a proportional tax will: (a) increase the slope of the consumption function.(b) reduce the multiplier.(c) increase the equilibrium level of income.(d) increase the multiplier.Q.1.17 A decrease in the price level will: (a) shift the AS curve to the left.(b) shift the AD curve to the left.(c) shift the AS curve to the right.(d) leave both the AD curve and the AS curve unchanged.
- n the Keynesian cross, assume that the consumption function is given byC = 200 + 0.75 (Y - T).Planned investment is 100; government purchasesand taxes are both 100.a. Graph planned expenditure as a function ofincome.b. What is the equilibrium level of income?c. If government purchases increase to 125, whatis the new equilibrium income?d. What level of government purchases is neededto achieve an income of 1,600?Derive the consumption function and use this relation in the aggregate demand function to derivean equation for the equilibrium in the goods market . Why the AD line is upward sloping?Suppose the government spending falls by 100 and in this case marginal propensity to consumeis 0.8. what is the value of change in output. Draw a diagram to show the shift in AD line due tothis change in government spending and output.The following questions refer to this table: a.At each level of output, calculate saving. At each level of out-put, calculate unplanned investment (inventory change).What is likely to happen to aggregate output if the economyproduces at each of the levels indicated? What is the equilib-rium level of output?b.Over each range of income (2,000 to 2,500, 2,500 to 3,000, andso on), calculate the marginal propensity to consume. Calculatethe marginal propensity to save. What is the multiplier?c.By assuming there is no change in the level of the MPC andthe MPS and planned investment jumps by 200 and is sus-tained at that higher level, recompute the table. What is thenew equilibrium level of Y? Is this consistent with what youcompute using the multiplier?
- The Simple Keynesian Model (i.e., the income-expenditure model). Assume: C = 150 + 0.9 DI I = 50 DI = C + I in equilibrium for a 2-sector model (Note: DI = C in a 1-sector model) Define the term, consumption. What is the value of “autonomous” consumption (also called “a” or the vertical intercept)? What is the value of the slope (also referred to as “b”) of the consumption function? There’s another name for the slope of the consumption function. What is it? What is the value of DI when the model is in equilibrium? What is the value of the “oversimplified” expenditure multiplier? If full-employment means that DI = $5000, then how much should autonomous consumption (or autonomous investment) increase to achieve full-employment? (Hint: Use the multiplier process formula.) Draw a graph of this 2-sector model. Indicate equilibrium DI, full-employment DI, as well as…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 HypothesisYou are given data on the following variables in an economy: Government spending 300 Planned investment 200 Net exports 50 Autonomous taxes 250 Income tax rate 0.1 Marginal propensity to consume 0.5 Use the data above to answer the following questions. Consumption (C) is 600 when income (Y) is equal to 1500. Solve for autonomousconsumption. Solve for the equilibrium level of output in the following two scenarios: there isan income tax t=0.1, there is no income tax in the economy. Denote these two variablesby and respectively. In the economy with an income tax of 10%, what is the budget balance of thegovernment? Solve…
- Consider the following macroeconomy. All amounts are in millions (m.) of $: C = 750 + 0.8 YD I = 1200 G = 150 T = 250 Calculate eqm Y and prove that I=sum of S at this equilibrium. What is meant by the “Paradox of Thrift” (POT)? Go back to the original eqm of part a. Now prove using multiplier analysis that the POT holds in this economy by assuming that the change in co is -$50 m. As part of your answer, explain “intuitively” why this paradox exists. Show what happens in the Z-Y space graph.In a keynesian model it is assumed that the consumption function is given by C= 2000 + 0.75 (Y-T) and the planned investment is 1,000 government purchases and taxes are both of those and formulate and draw a graph of planned expenditure as a function of income What is the equilibrium level in the part above If the government purchases increased by 1250 what is the equilibrium income With the aid of a algebra prove that a balanced budget multiplier is always equals to 1Assume: Y= C + I + G + NX C = 400 + (0.8)YD Io = 200 G = 300 + (0.1)(Y* - Y) YD = Y - TA + TR NXo = - 40 TA = (0.25)Y TRo = 50 From the model above you can see that government purchases (G) are counter-cyclical, that is, G is increased as national income decreases. If you compare this specification of G with one that has a constant level of government spending (for example, Go = 300), how would the value of the expenditure multiplier differ?