Answered: Consider that the macroeconomy is hit…

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter18: The Keynesian Model

Section: Chapter Questions

Problem 9SQP

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Consider that the macroeconomy is hit by aftershocks. Exports decrease by $40 billion and imports increase by $200 billion. Modify your macroeconomic model to reflect both these aftershocks

1. At GDP of 7400: 1. Inventories are in surplus by 80 2. Inventories are in shortage by 80 3. Equilibrium is achieved by the macroeconomy according to the Keynesians 4. Inventories are in surplus by 240

2. At GDP of 8200: Inventories are in surplus by 320, Inventories are in shortage by 320, Equilibrium is achieved by the macroeconomy according to the Keynesians, or Inventories are both in surplus and shortage by 240

3. At GDP of 5000: Inventories are in surplus by 80, Inventories are in shortage by 80, Equilibrium is achieved by the macroeconomy according to the Keynesians, or Inventories are in surplus by 240

4. At GDP of 5800, exports are:

5. At GDP of 9000, imports are:

6. At the new equilibrium GDP, the economy is in:

7. The marginal propensity to consume (MPC) for your macroeconomic model is: 0.1, 0.4, 0.9, or 0.8

8. The multiplier for your macroeconomic model is: 10 , 5, 0.9, or 0.8

9. The goal of fiscal policy would be to increase equilibrium GDP by: $4,000 billion $3,200 billion $10,000 billion $1,000 billion

10. To achieve the goal of fiscal policy in your model, Government purchases of goods and services (G) would have to be increased by: $4,000 billion $3,200 billion $10 billion $320 billion

11. A cost-benefit analysis of the use of fiscal policy in your macroeconomic model ceteris paribus would lead to the conclusion that the policy should be undertaken since the costs are $ ___ while the benefits are $ ___ Group of answer choices $4,000 billion; $300 billion, $3,200 billion; $0 billion, $10 billion; $5000 billion, $320 billion; $3,200 billion

Now suppose I decreases by $80 billion as a result of a macroeconomic shock. Modify
your macroeconomic model to reflect this change ceteris paribus and answer the

Using the real GDP figures below (in billions of $) develop the macroeconomic model
to answer the questions that follow sequentially (questions 16 - 20).
The consumption function is estimated to be C = 200+ 0.9(GDP).
Assume ceteris paribus that I = $200; G = $600; X=$200; M = $380 where all variables
have the usual macroeconomic meanings. Further, assume that full employment GDP
is at $8,200; Inflation at $9,000; and less than $8200 are all recessionary levels at
various degrees of recession.
GDP
$5000
$5800
$6600
$7400
$8200
$9000

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