Consider a 4-sector Keynesian model like that discussed in class with the following characteristics: exogenous consumption=10000, exogenous taxation=4000, government spending=5000, exports=5000, planned investment=2000. The marginal propensity to save=50%, the marginal tax rate (t)=30% and the marginal propensity to import (m)=20%. The potential output for the economy is 16000. Note that import demand is given by M=m(1-t)Y. 1. What is the output gap?
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Consider a 4-sector Keynesian model like that discussed in class with the following characteristics: exogenous consumption=10000, exogenous
1. What is the output gap?
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- Consider a 4-sector Keynesian model like that discussed in class with the following characteristics: exogenous consumption=2000, exogenous taxation=100, government spending=1000, exports=400, planned investment=400. The marginal propensity to save=20%, the marginal tax rate=20% and the marginal propensity to import=40%. The potential output for this economy is 6000. Note that import demand depends on disposable income. a) At its short run equilibrium, this economy is experiencing __________ (a contractionary/an expansionary) gap of __________ (round to 2 decimal places) b) Following the outbreak of a pandemic in the above economy, exogenous consumption falls to 1000 and the marginal propensity to save increases to 40%. In order for this economy to experience a zero output gap, government spending must ____________ (increase/decrease) by ____________ . Assume all other quantities remain unchangedIn the Fisher model, explain why a rational and forward-looking consumer facing borrowing constraints may end up consuming the same amount as predicted by the Keynesian model.What happens when investment taxes decrease for the Neo Keynesian model used in class? Choose all that apply. Group of answer choices Real GDP decreases. An inflationary gap occurs. The price level decreases. Real GDP increases. The price level increases. A recessionary gap occurs.
- Two identical countries, Country A and Country B, can each be described by a Keynesian-cross model. The MPC is 0.6 in each country. Country A decides to increase government spending by $2 billion, while Country B decides to cut taxes by $2 billion. In which country will the new equilibrium level of income be greater? Show all computations.Consider two standard Keynesian models. In Model 1, there are two types of consumers, Type A,who have low marginal propensities to consume, and Type B, who have high marginalpropensities to consume. In Model 2, there are only Type A consumers. Then, a decrease in theexogenous taxes would lead to higher output in Model 2 than in Model 1Consider a simple Keynesian model with taxation. Suppose the marginal rate of tax is 0.2 and the marginal propensity to consume is 0.5. Then a decrease in investment expenditure of 100 units will: Group of answer choices None of the other options Increase equilibrium output by approximately 150 units Increase equilibrium output by approximately 167 units Decrease equilibrium output by approximately 150 units
- Suppose we have the following information for the simple (fixed r, fixed P, fixed W) Keynesian model. C = 400 + 0.8 I = 310 G = 140 = 400 + 0.8 (Y - T) T = 200, where C is the consumption function, (Y - T) is disposable income, I is investment, G is government spending, and T is taxes If government spending increased by $80, equilibrium Y would Group of answer choices A) increase by $400. B) decrease by $160. C) increase by $80. D) increase by $320. E) increase by approximately $106.67.Consider a Keynesian model with consumption function C = 100 + c(Y – T), 0<c<1 where taxes T are given by T = 100 + tY, 0<t<1 with marginal tax rate t. An increase in G will increase equilibrium output by the multiplier: a. 1/(1 – c – c*t) b.1/(1 – c + c*t) c.1/(1 – c*t) d.1/(1 – c)Suppose we have the following information for the simple (fixed r, fixed P, fixed W) Keynesian model. C = 400 + 0.8 I = 310 G = 140 = 400 + 0.8 (Y - T) T = 200, where C is the consumption function, (Y - T) is disposable income, I is investment, G is government spending, and T is taxes If (disposable income) increased by $200, C would Group of answer choices A) increase by $160. B) increase by $150. C) increase by $135. D) decrease by $40. E) increase by $200.
- 10 In the context of the Keynesian model, which of the following statements is incorrect? Group of answer choices: An increase in the marginal propensity to consume results in a steeper planned aggregate expenditure line An exogenous payment from the government to households results in an unplanned increase in inventories An exogenous collection of taxes from the government results in an unplanned increase in inventories None of the other optionsThe Keynesian model suggests that .... should be preferred over .... since the ..... is larger than the ..... a. fiscal policy / monetary policy / unplanned changes in inventories / marginal propensity to consume. b. fiscal policy / monetary policy / impact of money supply / marginal propensity to consume. c. government sprending / tax cuts / tax multiplier / government-spending multiplier. d. government sprending / tax cuts / government-spending multiplier / tax multiplier. e. monetary policy / fiscal policy / impact of money supply / marginal propensity to consume.In a simple model without government spending or taxation, if C = a +bY where C is consumer spending and Y is GDP which of the following statements are correct? Note that some of these questions require you to have read relevant sections of Core Unit 13. [FOUR correct answers] Select one or more: a. The consumption function implies that if GDP is zero, consumption is zero b. b is known as the average propensity to consume c. If there is an increase in consumers who engage in "consumption smoothing", this will cause an increase in a and a decrease in b d. a is known as the marginal propensity to consume e. b is known as the marginal propensity to consume f. a is the level of consumption when Y is zero g. If consumption-smoothing consumers become more optimistic about the future, a will increase. h. If there are more credit-constrained consumers in the economy, this will cause the marginal propensity to consume, to fall