Consider a closed economy with consumption, production, and government. The representative consumer always desires a consumption bundle where the quantities of consumption and leisure are such that C=al and a = 1. Suppose that profit = 8, and T = 6. Show the following on your answer sheet. [1] Suppose initially, in this economy, we had w = 0.75. In a diagram show what would happen if everything remaining the same, wage increases. [2] Calculate how much will be the new C, if new w = 1.5.
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- Accordingtothetextbook,whichofthefollowingstatementsis(are)correct? (x) An advantage of a consumption tax over the present income tax system is that a consumption tax discourages consumption and encourages saving. (y) If interest income from savings is taxed, a disincentive to save is created and less saving occurs. (z) An advantage of a consumption tax over the present tax system is that a consumption tax places more of the tax burden on the wealthy. (x), (y) and (z) (x) and (y) only (x) and (z) only (y) and (z) only (x) onlyIf the government collects more in tax revenue thanit spends, and households consume more than theyget in after-tax income, thena. private saving and public saving are both positive.b. private saving and public saving are bothnegative.c. private saving is positive, but public saving isnegative.d. private saving is negative, but public saving ispositive.(Please explain with graphic) Suppose that a consumer cannot vary hours of work as he or she chooses. In particular, he or she must choose between working q hours and not working at all, where q > 0. Suppose that dividend income is zero, and that the consumer pays a tax T if he or she works, and receives a benefit b when not working, interpreted as an unemployment insurance payment. a. If the wage rate increases, how does this affect the consumer’s hours of work? What does this have to say about what we would observe about the behavior of actual consumers when wages change? Explained also with the graph b. Suppose that the unemployment insurance benefit increases. How will this affect hours of work? Explain the implications of this for unemployment insurance programs. Explained also with the graph
- Course: Macroeconomic - IS-LM Model Prove mathematically the following: Given an increase in the proportional tax on income(t), what happens to the level of output and to the tax?" . Hint: for demostration, use the IS general function for a closed economy Y = C + I + G, where C = a + c*YD and YD = Y + TR - Y*t (where t = proportional income tax) and realize changes i.e., from "t1" to "t2"Suppose the consumption function is given by C(Y)=60+0.8(Y-T) where Y represents output and T stands for net taxes. Suppose further that the level of investment, I, is 400, the level of government expenditure, G, is 300, and net taxes, T, are 200. What is the equilibrium level of output in this economy? a. 1720 b. 3000 c. 1590 d. 720i need this in word not handwritten Q7. Assume that in 2015, the following prevails in the Republic of Nurd: Y = $200 G = $0 C = $160 T = $0 S = $40 I (planned) = $30 Assume that households consume 80 percent of their in- come, they save 20 percent of their income, MPC = 0.8, and MPS = 0.2. That is, C = 0.8Yd and S = 0.2Yd. Is the economy of Nurd in equilibrium? What is Nurd’s equilibrium level of income? What is likely to happen in the coming months if the government takes no action? 2. If $200 is the “full-employment” level of Y, what fiscal policy might the government follow if its goal is full employment? 3. If the full-employment level of Y is $250, what fiscal policy might the government follow? 4. Suppose Y = $200, C = $160, S = $40, and I = $40. Is Nurd’s economy in equilibrium? 5. Starting with the situation in part d, suppose the government starts spending $30 each year with no taxation and continues to spend $30 every period. If I remains constant, what…
- Consider an economy with two periods (interpreted as “when young” and “when old” periods)and two consumers, Gillian Davis and Joana Wolinsky. Gillian is a star ballet dancer with a lifetime income given by ωG= (400,0). Joana is an Econ Ph.D. student with incomeωJ= (0,400). Gillian and Joana have identical utility functions given by Ui(x1,x2) = 6 lnx1+ 3 lnx2 for i=G, J a) Plot an Edgeworth box and mark the initial endowment point. b) Write the general definition of Pareto efficient allocation (one sentence) and give the equivalent condition in terms of MRS (give formula). Check if this condition is satisfied for initial endowments. c) Derive the contract curve (write down the appropriate conditions and solve for the curve) and depict it in the Edgeworth box. d) Suppose Gillian and Joana can “trade” consumption in both periods at pricesp1,p2. Find the competitive equilibrium (6 numbers) and depict the equilibrium allocation in the Edgeworth box. e) Using the MRS condition from part b),…In our construction of the savings and investment model, weconsidered government spending to be immediate spending. In otherwords, there was no “investment” component to government spending.Let’s change up that assumption. Suppose government spending comesin two types: investment spending (new airports, for example) aswell as government consumption (snow plowing, for example). Callthe first GI and the second GCE.Imagine this economy has a 10% tax on income. The following are exogenous (not directly affected by income): G = 11 I = 4 X = M = 0 The consumption function is: C = k + cY, where k = 3, c = 0.8 Now we have to take that tax into account. Here is a way to think about it: Look at the consumption function. It says if you give me one more dollar of income I will spend 80 cents of it (mpc = 0.8). BUT I can only spend what I receive. I can only spend my after-tax or disposable income. With a 10% tax, I don't receive Y I receive 90% of Y or Y*(1-t) where t = 10% or 0.1. Let's define disposable income as Yd where Yd = Y*(1-t). Therefore we restate our consumption function as C = k + cYd Now we have, in this case, C = k + cYd or C = 3 + 0.8Yd or C = 3 + 0.8*(Y*[1-0.1]) or C = 3 + 0.72Y. Now what is the equilibrium GDP? Give the answer to ONE decimal place.
- If the government gives a $300 tax cut to everyone inthecountry,explainthemechanismbywhichthiswill cause interest rates to rise.Consider the economy of Hicksonia.a. C=300+0.50(Y-T)The investment function is I=100-20tGovernment purchases and taxes are both 150.For this economy, use a graph to illustratethe IS curve for r ranging from 0 to 8. (4marks)6. Use the following table to answer these questions: Y C I G X $ 500 $ 500 $ 10 $ 20 $ 60 $ 600 $ 590 $ 10 $ 20 $ 40 $ 700 $ 680 $ 10 $ 20 $ 20 $ 800 $ 770 $ 10 $ 20 $ 0 $ 900 $ 860 $ 10 $ 20 - $ 20 $ 1,000 $ 950 $ 10 $ 20 - $ 40 a.What is the Marginal Propensity to Import? b.What is the Marginal Propensity to Invetst? c.What the difference between both of…