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- The equations defining a simple model of the economy are : c=0.75y+18 and I =22 where C,Y and I denote consumption,national income and hence draw an accurate graph of C+I plotted against Y on the interval 0Please write down whether the following statements are true or false, and explain your answer very briefly A)If actual investment is greater than planned investment, inventories increase more than planned. B)The marginal propensity to consume is the change in consumption expenditure divided by the percentage change in income. C)Gross domestic product (GDP) is the value of all goods and services produced in an economy over a particular time period. D)Monetary policy refers to taxation and spending policies implemented by government. E)In a simple Keynesian model (with lump-sum taxes and a MPC of 0.8), a tax cut of 20 billion TL will have less of an impact on GDP than an increase in government spending of 10 billion TL. D)When you take 1000 TL from your savings account and deposit it in your checking account, M2 decreases. F)An open market purchase of government securities (such as Treasury Bills) by the Central Bank will decrease the money supply and raise the interest rate.…QUESTION 5Imagine the following simple Keynesian macroeconomic model for a closed economy.TD = C + Ip + G (total demand)C = C0 + YD (aggregate household consumption)YD = Y − T (aggregate household disposable income)Ip = I0 + aY − bR (aggregate planned investment)Y = TD (output, equilibrium condition)BB = T – G (government budget balance)With:G government consumption, T taxes, R real interest rate (exogenous variables)C0) and I0 autonomous consumption and investment0 < a, c, a+c < 1, b > 0 constant parametersDerive the equation for output and answer the following question. If the government in this model simultaneously increases its consumption G and its taxes T by the same amount, then: total demand decreases, and equilibrium output declines. total demand decreases, and equilibrium output declines, but only if C > G. total demand increases, and equilibrium output rises. The rise of output is stronger the higher the households’ marginal propensity to consume. total demand…
- Consider an economy described by the following equations: Y=C+I+G C=100+.75(Y−T)C=100+.75(Y−T) I=500−50rI=500−50r G=125G=125 T=100T=100 Where: Y is GDP, C is consumption, I is investment, G is government spending, T is taxes and r is the rate of interest. Questions: a. What is the value of the multiplier? b. What is the equilibrium equation for Y? Show solution. c. Suppose the Central Bank policy is to adjust the money supply to maintain the interest rate at 4 percent,so r=4. What is the value of output? d. Assuming that no change in fiscal policy, what is the effect of a reduction in interest rate from 4 percent to 3 percent on equilibrium output. e. In this case, explain the policy that was used by the policymaker to target the aggregate demand.In the Neoclassical model of determination of income in the long run we assumed that aggregate consumption was an increasing function of disposable income, , and nothing else. Suppose that instead we assume that consumption is an increasing function of disposable income, , and a decreasing function of the real interest rate, . Provide an economic rationale for making consumption a function of the real interest rate. How does this assumption change the national saving function relative to the benchmark model Using the model developed in (1), use a diagram for the market for loanable funds to describe what happens to national saving, national investment, and the real interest rate when government expenditure increases. Make sure to also explain in your own words the economic intuition of your results.Q4. In the Keynesian cross model, assume that the consumption function is given byC=120+0.8(Y-T).Planned investment is 200; government purchases and taxes are both 400.a. Graph planned expenditure as a function of income.b. What is the equilibrium level of income?c. If government purchases increase to 420, 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 2,400? (Taxes remain at 400.)e. What level of taxes is needed to achieve an income of 2,400? (Government purchases remain at 400.)
- What is the Euler equation for consumption, and what is its economicinterpretation?The private consumption of Macroland is given by C=500+0.75Y and the private investment function is given by I=400−1000r, where r is the interest rate and Y is the GDP. The planned aggregate expenditure can therefore be written as PE=C+I=900+0.75Y−1000r. The equilibrium in the goods and services market happens when the planned expenditure is equal to the actual expenditure, or PE=Y Find the equilibrium GDP by solving the system of equations PE=900+0.75Y-1000r PE= Y for Y and PE. Note your solutions will depend on r! 1. Plot your solution for Y in a diagram measuring Y on the horizontal axis and r on the vertical axis. This curve is called the IS curve.Consider a closed economy to which the Keynesian-cross analysis applies. Consumption is given by the equation C = 200 + 2/3(Y – T). Planned investment is 300, as are government spending and taxes. What happens to unplanned inventory investment? Should equilibrium Y be higher or lower than 1,500?
- Assume that total expenditure E comprises the sum of government consumption, G, household consumption, C, and investment, I. Assume a closed macroeconomic system, so that income equals expenditure Y=E. If we define household saving, SH, as SH=Y-T-C, where the cunsumption function is a fixed proportion of disposable income, C=c(Y-T), which of the following will be true? a. Higher government spending alongside unchanged taxation will lead to higher investment and higher household saving b. Higher government spending alongside unchanged taxation will have no effect on household saving or investment c. Higher government spending alongside unchanged taxation will lead to higher household saving d. Higher government spending alongside unchanged taxation will lead to lower household savingAnswer the given question with a proper explanation and step-by-step solution. We have the following information for an economy. All values are in billion dollars. Disposable Consumption Income Spending с Y Y-T Output Net (Income) Taxes Y T $200 300 400 500 600 700 800 900 1000 1100 1200 1300 1400 $100 100 100 100 100 100 100 100 100 100 100 100 100 $100 200 300 400 500 600 700 800 900 1000 1100 1200 1300 $75 150 225 300 375 450 525 600 675 750 825 900 975 Saving S=Yd-C $25 50 75 100 125 150 175 200 225 250 275 300 325 In this economy, equilibrium income/output is. (Enter your response as an integer.) Planned Government Investment I Purchases G $80 80 80 80 80 80 80 80 80 80 80 80 80 $120 120 120 120 120 120 120 120 120 120 120 120 120 Planned Aggregate Expenditure C+I+G $275 350 425 500 575 650 725 800 875 950 1025 1100 1175Suppose an economy is described by the following equations: Y = C + I + G + X – M C = 14 + 0.60Yd I = 20 G = 20 X = 15 M = 5 +0.1Y T = 20 + 0.4Y Where Y is domestic income Yd is private disposable income C is aggregate consumption spending T is government tax revenue I is investment spending G is government spending E represents exports M represents imports of goods and services. With a help of a diagram explain and discuss life cycle hypothesis.
