QUESTION 10 Assuming that the "equilibrium income" is $4,000 and the "full-employment" income is $8,000, which means a recessionary gap of $4,000, how much change in government expenditures is needed to fill the gap if MPC is 0.50? O $3,000 O $4,000 O $1,000 O $2,000
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- 14 If government spending and taxes both change by the same amount, how much must they change to eliminate the recessionary gap? 15. Suppose the MPC is .90 and the MPI is .10. If govern- ment expenditures go up $100 billion while taxes fallConsider an economy that is operating atthe full-employment level of real GDP.Assuming the MPC is 0.90, predict the effect onthe economy of a $50 billion increase in governmentspending balanced by a $50 billionincrease in taxes.Consider an economy similar to that in the preceding question in which investment is also $200, government purchases are also $500, net exports are also $30, and the price level is also fixed. But taxes now vary with income and, as a result, the consumption schedule looks like the following: GDP Taxes DI C $1,360 $320 $1,040 $810 1,480 360 1,120 870 1,600 400 1,200 930 1,720 440 1,280 990 1,840 480 1,360 1,050 Find the equilibrium graphically. What is the marginal propensity to consume? What is the tax rate? Use your diagram to show the effect of a decrease of $60 in government purchases. What is the multiplier? Compare this answer to your answer to Test Yourself Question 1. What do you conclude? GDP…
- Assume taxes are zero and an economy has a consumption function of C = 0.81 (Yd) + $707.13. By how much will consumption change if disposable income in the economy changes by -447? Round your answer to two digits after the decimal and be sure to provide a negative sign if consumption decreases.Table 2 shows elements in the national income accounts of an economy. Assume the economy is currently in equilibrium. Elements £ billions Consumption (total) 80 Investment 9 Government Expenditure 6 Imports 15 Exports 8 What is the current equilibrium level of income? What is the level of injections? What is the level of withdrawals? If national income now rises by £22 billion and as a result, the consumption of domestically produced goods rises to £80 billion. Calculate the marginal propensity to consume (MPC)What is the value of the multiplier? What is the value of the multiplier? Comment on the results in part (3) and (4).Assume that a three-sector economy in Country W. The amount of autonomous consumption is RM300 million with the proportion of an increase in income that is spent on consumption is 0.5. An induced tax of 20% is imposed by the country. The amount of investment is RM250 million, and the amount of government spending is RM150 million. (iii) Explain what would happen to the national income equilibrium if the investment changes by RM100 million.
- 19 - How does the increase in total expenditures affect the equilibrium income level?A) remains constantB) IncreasesC) first increase and then decreaseD) DecreasesE) Decrease first, then increase.Question:Given that the marginal propensity to consume in a fully employed closed economy is 0.75, an increase in government expenditure of $1,000 million will increase the national income by:a. $0b. $750c. $4,000d. $7,500e. $8,000Set 1: Equilibrium output1.Government. Suppose the consumption function is given by C= 100+ .8Y, while investment is given by I= 50 a) What is the equilibrium level of income in this case?b) What is the level of saving in equilibrium? c) If, for some reason, output is at the level of 800, what will the level of involuntary inventory accumulation be?d) If I rises to 100 (we discuss what determines I in later chapters), what will the effect be on the equilibrium income?e) What is the value of the multiplier, a, here?f) Draw a diagram indicating the equilibria in both (a) (d). 2.Suppose the consumption behaviour in problem 1 changes so that C= 100+ .9Y, while I remains at 50.c) Does this change in investment spending have more or less of an effect on Y than it did in problem 1? Why?d) Draw a diagram indicating the change in equilibrium income in this case.
- Set 1: Equilibrium output1.Government. Suppose the consumption function is given by C= 100+ .8Y, while investment is given by I= 50 a) What is the equilibrium level of income in this case?b) What is the level of saving in equilibrium? c) If, for some reason, output is at the level of 800, what will the level of involuntary inventory accumulation be?d) If I rises to 100 (we discuss what determines I in later chapters), what will the effect be on the equilibrium income?e) What is the value of the multiplier, a, here?f) Draw a diagram indicating the equilibria in both (a) (d). 2.Suppose the consumption behaviour in problem 1 changes so that C= 100+ .9Y, while I remains at 50.a) Is the equilibrium level of income higher or lower than it was in problem 1(a)? Calculate the new equilibrium level, Y', to verify this.b) New suppose investment increases to I= 100, just as in problem 1(d). What is the new equilibrium income?c) Does this change in investment spending have more or less of an effect…Assume that a three-sector economy in Country W. The amount of autonomous consumption is RM300 million with the proportion of an increase in income that is spent on consumption is 0.5. An induced tax of 20% is imposed by the country. The amount of investment is RM250 million, and the amount of government spending is RM150 million. A) explain what would happen to the national income equilibrium if the invesment changes by rm100 millionAssume that a three-sector economy in Country W. The amount of autonomous consumption is RM300 million with the proportion of an increase in income that is spent on consumption is 0.5. An induced tax of 20% is imposed by the country. The amount of investment is RM250 million, and the amount of government spending is RM150 million. Explain what would happen to the national income equilibrium if the investment changes by RM100 million.
