Consider the following information describing a closed economy with nogovernment and where aggregate output is demand determined. Alldollar figures are in billions.1. the equilibrium condition is Y=C+I2.3.4.the marginal propensity to consume is 0.25the autonomous part of C is $300investment is autonomous and is $40TABLE 21-4Refer to Table 21-4. The equilibrium level of national incomeA. $160.OB. $93.OC. $70.OD. $120.OE. $280.

Equilibrium condition Y = C + I Marginal Propensity to consume = 0.25 Consumption = $300 Investment…

Consider the following information describing a closed economy with no government and where aggregate output is demand determined. All dollar figures are in billions. 1. the equilibrium condition is Y=C+I 2. 3. the autonomous part of C is $300 4. investment is autonomous and is $40 the marginal propensity to consume is 0.25 TABLE 21-4

Consider the following information describing a closed economy with no government and where aggregate output is demand determined. All dollar figures are in billions. 1. the equilibrium condition is Y=C+I 2. 3. the autonomous part of C is $300 4. investment is autonomous and is $40 the marginal propensity to consume is 0.25 TABLE 21-4

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter18: The Keynesian Model

Section: Chapter Questions

Problem 9SQP

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Only typed answer Assume that marginal propensity to consume is 0.8 and full-employment level of output is $800 billion. If the actual real GDP is $700 billion, find the change in lump-sum taxes that would bring the economy back to its full-employment level of output (assume taxes and transfer payments do not depend on income and the economy is a closed economy).
It is found that the consumption function for the economy is C = 50 + 0.8 Y d . Current level of output is 8800 and the potential GDP is 9000. Assuming the Keynesian view of the short run, answer the following questions. Illustrate this economy using a carefully labeled diagram. What is a larger concern for this economy: unemployment or inflation? If the economic policy makers want to bring the level of output to the potential GDP by changing the government expenditures (G), how much do they need to change G? Be sure to indicate whether the change is an increase or decrease. True or False and explain: If the policy in part c was successful, the unemployment rate will be zero.
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Consider a closed economy with no government, where aggregate demand is determined by autonomous consumption, investment (which is independent of output), and the marginal propensity to consume. a) Given that autonomous consumption is 20, investment is also 20, and the marginal propensity to consume is 0.6, write out an equation for aggregate demand (AD) in this economy. b) Given this aggregate demand equation, and the equilibrium equation Y = AD, use algebra to find the equilibrium level of Y. (2 marks) 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 demand function from part (a). Label the intercept of the AD line, and the point where the two lines intersect, with numerical values. d) Suppose that the marginal propensity to consume falls from 0.6 to 0.5. What would the new equilibrium level of Y be? Illustrate your answer in the diagram you drew for part (c). e)…
An economy’s aggregate demand is specified as follows: C = 300 + 0.8Yd, Investment (Io) = 230, Taxes (T) = 120 + 0.2Y, Government final purchase = 400, Export (X) =240 and Import (M) = 400. Find the equilibrium national income? Find the value of the injections in this economy iii. How much withdrawals are when the economy is in equilibrium?
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