In the Keynesian cross model, assume that the consumption function is given by C=$170+0.7(Y-T) Planned investment is $100; government purchases and taxes are both $100.
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- 1. In the Keynesian model, suppose that the economy has the following values : C = 100 + 0.75*Y G = 300 I = 200 NX = 0 (remember Y = GDP = C + I + G + NX) a) Solve for the level of equilibrium output in this economy. b) What is the MPC in this economy? What is the multiplier on government spending? (I want a specific number here, not a definition) c) Household savings is defined as income minus consumption (S = Y – C). What is the level of household savings in this economy? d) Suppose that households become nervous about the future of the economy and decide that they will consume less and save more money, so their new consumption function becomes C = 100 + 0.6*Y Solve for the new equilibrium level of output and calculate how much households end up saving. How has it changed from the level of savings in part c? e) How much does the government needs to increase its spending by to counteract the fall in economic output in this model?Question 1 (14 marks) Consider the following numerical example of the simple Keynesian model with no government spending, taxes or a foreign sector (all figures in R millions): C = 100 + 0,9Y I = 50 Answer the following questions. What is the value of the marginal propensity to consume (MPC) in this model? (2) What is the value of the multiplier in this economy? (3) Calculate aggregate spending in this economy (2) Calculate the equilibrium level of output. (3) Suppose the level of output that creates full employment (Yf) in the economy is 1 800. Determine the level of investment spending that would create full employment in this economy. (4)n the Keynesian cross model, assume that the consumption function is given by C = 110 + 0.75(Y - T). Planned investment is 300; government purchases is 350. Assume a balanced budget. a. Graph planned expenditure as a function of income.b. What is the equilibrium level of income?c. If government purchases increase to 400, what is the new equilibrium income? What is the multiplier for government purchases? Solve D and Ed. What level of government purchases is needed to achieve an income of 2,200? (Taxes remain unchanged.)e. What level of taxes is needed to achieve an income of 2,200? (Government purchases remain at 350.)
- 1. Construct your Keynesian General Equilibrium model in an open economy with government. 2. Make your own assumptions and functions. Give your own numbers. And 3. calculate equilibrium income by two methods. a) One from writing the model and solving the model, b) secondly from all injections should be equal to all leakages. c) Calculate all multipliers and expand your model to show how these multipliers are used.1.If a government tax cut has its intended effect of increasing consumer spending, then you know that consumers do not subscribe to: A. The aggregate consumption hypothesis B.The standard Keynesian model of consumption C.The lifecycle consumption model D.The permanent income hypothesis E.Greenspan's macro spending modelThe 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…
- In the Keynesian cross, assume that the consumption function is given by C = 200 + 0.75 (Y − T). Planned investment is 100; government purchases and taxes are both 100. (solve three tasks) Graph planned expenditure as a function of income. What is the equilibrium level of income? If government purchases increase to 125, what is the new equilibrium income?In a keynesian model it is assumed that the consumption function is given by C= 2000 + 0.75 (Y-T) and the planned investment is 1,000 government purchases and taxes are both of those and formulate and draw a graph of planned expenditure as a function of income What is the equilibrium level in the part above If the government purchases increased by 1250 what is the equilibrium income With the aid of a algebra prove that a balanced budget multiplier is always equals to 11.Draw the graph of the Keynesian cross model as a comparison of planned and realized expenditures. What is the intercept of the planned expenditure line? What is its slope? If government expenditures would be a positive function of output, how would the Keynesian cross change?
- b. From the Intertemporal Choice Model, many theories (non-Keynesian theories ofConsumption) came into being. Using graphical and mathematical expressions, compareand contrast the following theories on consumption behaviours:i. Franco Modigliani: Life-Cycle Hypothesisii. Milton Friedman: Permanent-Income Hypothesisiii. Robert Hall: Random Walk HypothesisSuppose in a simple Keynesian economy, planned consumption function is given by C=250+0.65(Y-T). Planned investment, government purchases, taxes are $100 million, $100 million and $150 million respectively. 3. If government purchases increase to $150 million, what is the new equilibrium level of income? 4. What level of government purchases is needed to achieve an income of $2000 million? 5. From question e) you get the newly government purchase. Now find out the multiplier value 6. What is the amount of shift in AD curve? [Use the multiplier value from (5)](Building IS–LM Model) In the Keynesian cross, assume that the consumption function is given by C = 200 + 0.75 (Y − T ). Planned investment is 100; government purchases and taxes are both 100. A. Graph planned expenditure as a function of income. B. What is the equilibrium level of income? C. If government purchases increase to 125, what is the new equilibrium income? D. What level of government purchases is needed to achieve an income of 1,600?
