Consider the following Keynesian Cross. The AE function decreased from AEO to AE1 due to a decrease in the autonomous consumption Cao to Ca1. What will happen to the simple multiplier effect?AEORObOeOd45AE,a,Y, CAAE,a,Y, CaThe simple multiplier will increaseNot enough information to answer the questionThe simple multiplier will become inverseThe simple multiplier will stay the sameThe simple multiplier will decrease

Consumption is the sum of autonomous consumption and consumption dependent on income. Disposable…

Consider the following Keynesian Cross. The AE function decreased from AEO to AE1 due to a decrease in the autonomous consumption Cao to Ca1. What will happen to the simple multiplier effect? AE OR Ob Od 45 AE,a, Y. Ca AE,a, Y, Ca The simple multiplier will increase Not enough information to answer the question The simple multiplier will become inverse The simple multiplier will stay the same The simple multiplier will decrease

Consider the following Keynesian Cross. The AE function decreased from AEO to AE1 due to a decrease in the autonomous consumption Cao to Ca1. What will happen to the simple multiplier effect? AE OR Ob Od 45 AE,a, Y. Ca AE,a, Y, Ca The simple multiplier will increase Not enough information to answer the question The simple multiplier will become inverse The simple multiplier will stay the same The simple multiplier will decrease

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter8: The Keynesian Model

Section: Chapter Questions

Problem 2SQP

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Assume a simple Keynesian macro model:AE = C + I C = 100 + 0.75Y I = 200i) Find the equilibrium level of income. Show the equilibrium on a graph. ii) Calculate the simple multiplier and find the effect on the equilibrium level of income of a change in the level of planned investment from 200 to 150 by using a multiplier.
Question 1Explain fully how the equilibrium output, income, and employment are determined in the Keynesian model. Illustrate with an appropriate graph. Suppose that the equilibrium GDP is $500 billion and the full employment GDP is $600 billion. If the slope of the AE curve is 0.8, how much would the government have to change its expenditure to get the economy to full employment equilibrium? Illustrate your answer with an appropriate graph, and show the numerical values in your graph. Explain your understanding of the multiplier process used in answering part B.
Given C=500 + 0.80Y and I = 100 and C and I are the only components of AD. Based on the equilibrium level of output above, how much of it came from induced consumption spending?Based on the multiplier model, the equilibrium level of output will be equal toHow much is the value of the expenditure multiplier?
Suppose the marginal propensity to consume in an economy is 0.9. What would be the Keynesian multiplier in this economy? (Express your answer as a whole number – no fractions or decimals)
The Simple Keynesian Model (i.e., the income-expenditure model). Assume: C = 150 + 0.9 DI I = 50 DI = C + I in equilibrium for a 2-sector model (Note: DI = C in a 1-sector model) Define the term, consumption. What is the value of “autonomous” consumption (also called “a” or the vertical intercept)? What is the value of the slope (also referred to as “b”) of the consumption function? There’s another name for the slope of the consumption function. What is it? What is the value of DI when the model is in equilibrium? What is the value of the “oversimplified” expenditure multiplier? If full-employment means that DI = $5000, then how much should autonomous consumption (or autonomous investment) increase to achieve full-employment? (Hint: Use the multiplier process formula.) Draw a graph of this 2-sector model. Indicate equilibrium DI, full-employment DI, as well as…
Recall the Keynesian Cross is the foundation to derive the IS curve. Suppose we have a simple closed economy. The cross of planned expenditure (PE) and the equilibrium condition (PE = Y) of this economy shows the equilibrium level of national output in the goods market. Here we assume the consumption (C) is a function of • C = 120 + 0.75(Y-T); Here the marginal propensity to consume (MPC) equals 0.75. Planned investment (I) is 200; government purchases (G) and taxes (T) are both 400. Use the conditions given, finish the following questions. (1) What is the equilibrium level of national income? Show step-by-step solution. Tip: recall the definition of planned expenditure (PE). At equilibrium, actual expenditure (Y) equals planned expenditure. (2) If government expenditures increase to 500, ceteris paribus (other things being equal), what is the new equilibrium income? What is the multiplier for government purchases? How much is the change of national income from the increase in…
Assume: Y= C + I + G + NX C = 400 + (0.8)YD Io = 200 G = 300 + (0.1)(Y* - Y) YD = Y - TA + TR NXo = - 40 TA = (0.25)Y TRo = 50 From the model above you can see that government purchases (G) are counter-cyclical, that is, G is increased as national income decreases. If you compare this specification of G with one that has a constant level of government spending (for example, Go = 300), how would the value of the expenditure multiplier differ?