Consider two standard Keynesian models. In Model 1, there are two types of consumers, Type A, who have low marginal propensities to consume, and Type B, who have high marginal propensities to consume. In Model 2, there are only Type A consumers. Then, a decrease in the exogenous taxes would lead to higher output in Model 2 than in Model 1
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Consider two standard Keynesian models. In Model 1, there are two types of consumers, Type A,
who have low marginal propensities to consume, and Type B, who have high marginal
propensities to consume. In Model 2, there are only Type A consumers. Then, a decrease in the
exogenous taxes would lead to higher output in Model 2 than in Model 1
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- Consider a 4-sector Keynesian model like that discussed in class with the following characteristics: exogenous consumption=2000, exogenous taxation=100, government spending=1000, exports=400, planned investment=400. The marginal propensity to save=20%, the marginal tax rate=20% and the marginal propensity to import=40%. The potential output for this economy is 6000. Note that import demand depends on disposable income. a) At its short run equilibrium, this economy is experiencing __________ (a contractionary/an expansionary) gap of __________ (round to 2 decimal places) b) Following the outbreak of a pandemic in the above economy, exogenous consumption falls to 1000 and the marginal propensity to save increases to 40%. In order for this economy to experience a zero output gap, government spending must ____________ (increase/decrease) by ____________ . Assume all other quantities remain unchangedConsider a standard Keynesian model but with two types of consumers, Type A who have low marginal propensities to consume and Type B who have high marginal propensities to consume. An economy with relatively more Type A consumers is more vulnerable to a negative shock to investment demand.Answer true, false, or uncertain. Please briefly explain your answer.Comparing the simple Keynesian model with the IS-LM model, in the IS-LM model a. the balanced budget multiplier is larger. b. the government spending multiplier is larger. c. the tax multiplier is smaller. d. there is no difference between any of the multipliers.
- Consider a simple Keynesian model without government spending or taxation. Suppose autonomousconsumption is 500 and autonomous investment is 300 and the equilibrium level of output is 2400.Then the marginal propensity to consume is: a.2/3 b.Uncertain, not enough information c.3/5 d.3Consider a closed economy where investment is constant and the marginal propensity to consume is 0.8. In that economy, the government decides to increase its expenditures. Why is the associated Keynesian multiplier greater than 1? Select one: a. Because the production increase leads to a revenue increase which leads to a demand increase which leads to a consumption increase which leads to further increases in production, demand and consumption b. Because the demand increase leads to a consumption increase which leads to a GDP increase which leads to a supply increase which leads to further increases in consumption, revenue and supply c. Because the demand increase leads to a supply increase which leads to a revenue increase which leads to a consumption increase which leads to further increases in demand, supply and GDP d. Because the production increase leads to a demand increase which leads to a supply increase which leads to a revenue increase which leads to further increases in…Consider a Keynesian model but where investment (just like consumption) is increasing in aggregate income, e.g., because investment depends on business cash flow. Now that investment depends on aggregate income, a fiscal stimulus has more effect on equilibrium output.Answer true, false, or uncertain. Please briefly explain your answer
- Suppose we have the following information for the simple (fixed r, fixed P, fixed W) Keynesian model. C = 400 + 0.8 I = 310 G = 140 = 400 + 0.8 (Y - T) T = 200, where C is the consumption function, (Y - T) is disposable income, I is investment, G is government spending, and T is taxes If government spending increased by $80, equilibrium Y would Group of answer choices A) increase by $400. B) decrease by $160. C) increase by $80. D) increase by $320. E) increase by approximately $106.67.Two identical countries, Country A and Country B, can each be described by a Keynesian-cross model. The MPC is 0.6 in each country. Country A decides to increase government spending by $2 billion, while Country B decides to cut taxes by $2 billion. In which country will the new equilibrium level of income be greater? Show all computations.In a Keynesian model, why would a $100 million increase in government expenditure on goodsand services have a greater impact on aggregate demand than a $100 million reduction in taxrevenue?A Consumers spend only part of any extra disposable income.B Government expenditure does not create wealth.C The marginal tax rate affects the value of the multiplier.D The multiplier does not apply to consumer expenditure.
- Consider a 4-sector Keynesian model like that discussed in class with the following characteristics: exogenous consumption=10000, exogenous taxation=4000, government spending=5000, exports=5000, planned investment=2000. The marginal propensity to save=50%, the marginal tax rate (t)=30% and the marginal propensity to import (m)=20%. The potential output for the economy is 16000. Note that import demand is given by M=m(1-t)Y. 1. What is the output gap?Suppose we have the following information for the simple (fixed r, fixed P, fixed W) Keynesian model. C = 400 + 0.8 I = 310 G = 140 = 400 + 0.8 (Y - T) T = 200, where C is the consumption function, (Y - T) is disposable income, I is investment, G is government spending, and T is taxes If (disposable income) increased by $200, C would Group of answer choices A) increase by $160. B) increase by $150. C) increase by $135. D) decrease by $40. E) increase by $200.According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size. a.true b.false