Given the following set of equations for an economy model: C = A+b YD I = I* - Ir T = T* + tY Consumption expenditure Investment Tax Revenue Import Disposable Income I*, G*, X* and M* are autonomous investment, government spending, autonomous export dan autonomous import, respectively. M = M* + mY YD = Y - T
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- . 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.Given the following consumption function, C = 400 + 0.75YD,where C= consumption expenditure, YD = disposable income, Investment= $1200, Government spending = $1600,Exports = $500, Imports = $600, Taxes = $1200 and Potential GDP = $9000Aactual output is less than potential outputactual output is zeroactual output is equal to potential outputactual output is higher than potential outputThe national income model for an economy is represented as follows (units are in Ksh.M) Y = C + I + G + X – M I = 320 + 0.20Y G = 980 C = 540 + 0.80Y M = 640 + 0.25Y X = 850 Y = National income; C = Consumption; I = Investment; G = government spending; X = Exports; and M = Imports. Determine the following.TRUE or FALSE: This model has three endogenous variablesAnswer 1Choose... TRUE or FALSE: The country’s marginal propensity to save is 20%.Answer 2Choose... Autonomous level of importsAnswer 3Choose... Equilibrium investment Answer 4Choose... Equilibrium national incomeAnswer 5Choose... Net Exports (NX) Answer 6Choose... TRUE or FALSE: The economy is a net importer
- Describe how the endogeneity versus exogeneity of consumption expenditures (i.e., the household sector) affects the size of predicted output multipliers by an input-output model.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.In our construction of the savings and investment model, weconsidered government spending to be immediate spending. In otherwords, there was no “investment” component to government spending.Let’s change up that assumption. Suppose government spending comesin two types: investment spending (new airports, for example) aswell as government consumption (snow plowing, for example). Callthe first GI and the second GCE.
- Given the following consumption function, C = 400 + 0.75YD,where C= consumption expenditure, YD = disposable income, Investment= $1200, Government spending = $1600,Exports = $500, Imports = $600, Taxes = $1200 and Potential GDP = $9000Choose corrcct optiona) Aactual output is less than potential outputb) actual output is zeroc) actual output is equal to potential outputd) actual output is higher than potential outputNo written by hand solution Suppose an imaginary closed economy is characterized by the following: C = c0 + c1 (Y − T) T = t0 + t1Y I = 300 G = 300 C is consumption, Y and YD are, respectively, income and disposable income, T is the level of taxes, and I and G, are, respectively, private investment, and government spending. c0 and c1 are, respectively, autonomous consumption and the marginal propensity to consume; their values are unknown. However, the expression for private saving, S, is as specified below, where s1 is the marginal propensity to save out of total income. S = 0.4Y − 500 Assuming that the marginal tax rate, t1, is equal to 0.1 and the equilibrium GDP is 2000, find the level of autonomous taxes, t0, the equilibrium values of consumption, disposable income, and private saving.Question 3Part (a)In Japan, from the 1990s to the late 2000s, the interest rates fell to very low levels.However, this failed to stimulate consumption or investment spending. Use theaggregate expenditure model to explain what might have happened.Part (b)Suppose you are a highly regarded international economic advisor. You have beenasked to assess the possibilities of growth in an African country. It is a countryabundant in labour and some natural resources. The capital to labour ratio is low. Ithas a free market economy. You have found that this country does not have a verystrong and healthy banking system; however, the political system is stable and thegovernment does a good job protecting property rights. Assess this country’sprospects for growth. Recommend two things that would enhance the country’sgrowth
- Let the national income model be; Y = C + I0 + G , C = a + b ( Y – T) , G = g Y Identify endogenous variables Find the equilibrium national income Find equilibrium consumption(using static equilibrium & matrix algebra bothSuppose Bank of England is considering using the tool of cutting interest rates to boost household consumption. In this question you will be asked to use the intertemporal choice model to assess the impact of different policies on household consumption. Suppose a consumer's current income is £25,000 and their future income is £30,000, and they initially face a market interest rate of 15% on both saving and borrowing. (a) In a diagram with consumption this year (C1) on the horizontal axis and consumption next year (C2) on the vertical axis, illustrate this consumer's budget constraint (using the numerical values set above) and indicate their optimal choice by drawing a indifference curve convex to the origin, assuming that at the current interest rate it is optimal for them to save. (b) Calculate (using the numerical values set above) and interpret their marginal rate of time preference at their optimal choice. (c) Illustrate and explain how a fall in the market interest rate from 15%…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.
