Consider the following model of an economy operating with fixed wages, prices and interest rates and hasexcess capacity. Adsume all figures are I Zambian kwacha. C=100+0.8yd, T=100+25Y, G=980 and I= 500 Where c is consumption, yd is disposable income, T is taxes net of transformers, G is government spending on goods and services and I is investments. A. Calculate the equilibrium level of national income B. Illustrate your equilibrium in the keyneasian cross diagran C. What is the value of the multiplier D. Is governnent running a surplus or a deficit E. Show the impact of a reduction in government spending by 80 on the equilibrium level of national income F. Illustrate your new equilibrium in the same Keynesian cross diagram as in b.

Consider the following model of an economy operating with fixed wages, prices and interest rates and hasexcess capacity. Adsume all figures are I Zambian kwacha. C=100+0.8yd, T=100+25Y, G=980 and I= 500 Where c is consumption, yd is disposable income, T is taxes net of transformers, G is government spending on goods and services and I is investments. A. Calculate the equilibrium level of national income B. Illustrate your equilibrium in the keyneasian cross diagran C. What is the value of the multiplier D. Is governnent running a surplus or a deficit E. Show the impact of a reduction in government spending by 80 on the equilibrium level of national income F. Illustrate your new equilibrium in the same Keynesian cross diagram as in b.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

Problem 25CTQ: Imagine that the government statisticians who calculate the inflation rate have been updating the...

See similar textbooks

Similar questions

Imagine that the government statisticians who calculate the inflation rate have been updating the basic basket of goods once every 10 years, but now they decide to update it every five years. How will this Change affect the amount of substitution bias and quality/new goods bias?
arrow_forward Question Asked Aug 18, 2020 25 views Consider the following model of an economy operating with fixed wages, prices and interest rates and hasexcess capacity. Adsume all figures are I Zambian kwacha. C=100+0.8yd, T=100+25Y, G=980 and I= 500 Where c is consumption, yd is disposable income, T is taxes net of transformers, G is government spending on goods and services and I is investments. Is the government running a surplus or deficit Show the impact of a reduction in government spending by 80 on the equilibrium level of national income Illustrate your new equilibrium in the same Keynesian cross diagram
Consider an economy called Xanadu for which desired aggregate consumptiondepends on income, Y. and the real interest rate, r, according toCd =100+0.7Y - 200r.Xanadu's GDP is Y = 1000 and government spending on goods and services is G=180. Xanadu's desired future capital stock is given byK* = 140 - 100ucwhere luCdenotes the user-cost of capital. The price of capital is PK =2, thephysical depreciation rate is d =0.1 and the existing capital stock is K0= 50. Trapital stock between any period t and the following period t+1 evolves accordng toKt+1 = It+(1-d)Kt where It the level of investment. Assume throughout that net factor payments from abroad (NFP) is equal to zero.Suppose instead that Xanadu is a small open economy facing a world interest rate of 1%. It follows that Xanadu's current account position is equal toA) -16B) -51C) -6D) -8
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"
Consider a one-period economy which experiences the destruction of some of the nation’s capital stock (say through a hurricane is de- stroyed). How should this effect equilibrium, consumption, output and labor supply? Now, let’s say the government tries to offset some of the declines in capital on output and hours worked by increasing govern- ment spending. What is the likely outcome of this policy intervention in terms of consumption? In our model, the affects of changes on wages are ambiguous because the income and substitution effects move in opposite directions. How do (many) macroeconomists deal with this ambiguity in terms of study- ing business cycle? How do economists resolve this ambiguity when studying long term economic development? Consider an economy with a straight line PPF. Show how an increase in government spending paid for by an increase in lump sum labor taxes affects outcomes. Do the same for an increase in government spending financed by a proportional income…
Consider an economy in which the consumption, investment and production functions are as follows.C = 90 + 0:7(Y - T)I = 250 - 20r F(K;L) = AK1=2L1=2The capital and labor supply are equal to 100 each, A=10, G = 200 and T = 200. Compute theequilibrium values of output, overall labor income, consumption, public savings, national savings,investment, and the interest rate.Suppose now government spending decreases to G=100 (everything else stays the same). Whathappens to output, consumption, savings, investment and the interest rate? Compute the newvalues for these variables.
. Consider the macroeconomic model of a two-sector economy (i.e. no government or trade) using standard notation. Assume that the consumption function is linear, i.e. of the form: C = a +bY . It is known that when ? = 110, the value of consumption, C , is equal to 160.8, and that when ? = 170, the value of C is 207.6. (a) Determine the consumption function and derive the savings ( S ) function for the model. What is the marginal propensity to consume? (b) Determine the equilibrium level of national income when planned investment ? = 255.
Which one of the following statements is INCORRECT? A Keynesian economists believe that the business cycle is caused by external factors, such as governmentinterference in the economy.B Classical economists believe that market economies are inherently stable and fluctuations are ascribed toexogenous factors.C Classical economists believe that government should not intervene in the economy to try to smooth out thebusiness cycle.D Structuralist economists believe that the market system is neither inherently stable norsystematically unstable . Consider the case of two countries, Afghanistan and the US, both producing carpets and fighter aircraft.The table below shows output rates per day in the two countries if all resources are fully and efficientlyemployed. Use this information to answer the question.Carpets Fighter aircraftAfghanistan 100 4US 500 25An appropriate international exchange ratio that would allow mutually advantageous trade to takeplace would be: A 1 aircraft = 25 carpets.B…
Suppose we are in an economy with rich households and poor households. Rich and poor households have different consumption functions, with Cpoor = 100 + 35(Y poor − Tpoor) Crich = 100 + 15(Y rich − Trich) where Y rich, Y poor are the incomes of rich and poor households and T rich, T poor are the taxes faced by rich and poor households. We also have I = 200,G = 100, T = T poor + T rich = 100. Closing out the model, Y = C + I + G = Cpoor + Crich + I + G a Suppose that Y poor = Y rich Y2 (in other words, the total income of poor households is equal to total income of rich households.) Supposing further that T rich = T poor = 50, calculate equilibrium output Y . b Now suppose that Trich = 40,Tpoor = 60. What is equilibrium output now? c How can the government increase output without changing the deficit (hint: think about the difference between output in b and output in c.) d Now assume that T rich = 40, T poor = 60, but instead of output being split equally between rich and poor…
Consider the following numerical example of the simple Keynesian model with no government spending, taxes or foreign sector(all figures in R million): C=100+0,9Y I=50 a, what is the value of the marginal prosperity to consume (MPC) in the model. b, use a graph to illustrate the equilibrium level of output.
Please no written by hand solution Consider the following economic situations:C = $4.0 trillionI = $1.5 trillionG = $3.0 trillionT = $3.0 trillionNX = $1.0 trillionF = 0mpc = 0.8d = 0.35x = 0.15r = 1% λ = 0.5A. Calculate an expression for the IS, MP and AD curves ( r= ?, IS Y= ?, AD Y=?)B. Let AS curve be given by the relation: π = 6 + 1.5 (Y - 25.5) (i.e. the price shock is zero). What are the equilibrium values of inflation, output and the real interest rate(π, Y, r)?C. Suppose government purchases are raised from $3.0 trillion to $3.5 trillion. What are new short-run equilibrium inflation values, output and the real interest rate (π, Y, r}?D. Suppose a financial crisis begins, and ƒ increases ƒ = 3. (Assume government purchases are again as in part (a). What are the new short-run equilibrium values of inflation, output, and the interest rate (π, Y, r}?(Please solve all the parts with numerical steps so it could be practiced easily)
1Why low rate inflation is considered necessary for economic grwoth? Oa It does not affect the purchasing power of wages Ob. It indicates that the currency is in continuous demand by the people Oc taffects only the rich and not the poor Od itact as an incentive to boost in supply in the economy 2When the economy is in Keynesian macroeconomic equilibrium, planned investment is greater than actual investment. O a False O b. True 3Government fixes the floor and ceiling price which will not allow the producers to increase the price on their wish, this is a type of. O a Physical control called price pegging O b. Monetary policy control measures O. Physical control called price tagging Od. Fiscal policy control measures O e None 4Rising output coupled with falling prices is called stagflation O a. False O b. True 5The Value of marginal propensity to consume lies O a. O to 1 O b. Less than zero Oc -1 to 1 Od. Between O to 1 6The Central Bank way to control inflation is Oa Monetary policy…