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- Assume the following behavioral equations for a macroeconomy: C = 100 + .9Yd, l = 50, T= $100 and G = $40 from the above behavioral equation tax multiplier is Select one: O a. 1 b. none of the options O c. 10 O d. 9please explain each question. 1. We assumeconstantMPC in our model. Is this assumption true in the real world? 2. What determines the proportion of bonds/money that the household keeps? 3. What effect an increase of government spending will have on the output equilibrium in the goods market? Explain using autonomous spending.Please no written by hand solutions Data on before-tax income, taxes paid and consumption spending (on domestic goods and services) for the Simpson family in various years are given below. BEFORE-TAX INCOME ($) TAX PAID ($) CONSUMPTION SPENDING ($) 3000 3500 3700 4000 25 000 27 000 28 000 30 000 20 000 21 350 22 070 23 600 a. Graph the Simpsons's consumption function and find their household's marginal propensity to consume. b. How much would you expect the Simpsons to consume if their income was $32 000 and they paid taxes of $5000? c. Homer Simpson wins a lottery prize. As a result, the Simpson family increases its consumption by $1000 at each level of after-tax income. ('Income' does not include the prize money.) How does this change affect the graph of their consumption function? How does it affect their marginal propensity to consume?
- The following are exogenous (not directly affected by income): G = 11 I = 4 X = M = 0 The consumption function is: C = k + cY, where k = 3, c = 0.8 Now we have to take that tax into account. Here is a way to think about it: Look at the consumption function. It says if you give me one more dollar of income I will spend 80 cents of it (mpc = 0.8). BUT I can only spend what I receive. I can only spend my after-tax or disposable income. With a 10% tax, I don't receive Y I receive 90% of Y or Y*(1-t) where t = 10% or 0.1. Let's define disposable income as Yd where Yd = Y*(1-t). Therefore we restate our consumption function as C = k + cYd Now we have, in this case, C = k + cYd or C = 3 + 0.8Yd or C = 3 + 0.8*(Y*[1-0.1]) or C = 3 + 0.72Y. Now what is the equilibrium GDP?Suppose the economy is characterized by the following behavioral equation: Y = C + I + G + (X-M) Equilibrium condition C = 2000 -f' 0.75Yd Consumption equation I = 4000 Investment expenditure G = 4100 Government Expenditure X = 2800 Export M = 400 + 0.25Y Import equation T = 100 + 0.3Y Tax equation Yd = disposable IncomeRequired: Derive Balance of Payment (BP) curve and explain why it slopes upwards Compute equilibrium national income and Imports for the economy. Differentiate between the closed-economy model and the open economy model1. (50 points) Consider the two-period endowment model discussed in class where theeconomy is populated by m consumers and a government. The agents derive utilityfrom consumption in current and future period. The utility is well behaved. Supposethat the government, instead of borrowing in the current period, runs a governmentloan program. That is, loans are made to consumers at the market real interest rater, with the aggregate quantity of loans made in the current period denoted by L.Government loans are financed by lump-sum taxes on consumers in the current period(denoted by T), and we assume that government spending is zero in the current andfuture periods (i.e., G = G0 = 0). In the future period, when the government loansare repaid by consumers, the government rebates this amount as lump-sum transfers(negative taxes) to consumers. Hence, if we call T r0the lump sum transfers in thefuture period, then T r0 = −T0 > 0.(a) (10 points) Write down the government’s current period…
- Consider the two-period endowment model discussed in class where theeconomy is populated by m consumers and a government. The agents derive utilityfrom consumption in current and future period. The utility is well behaved. Supposethat the government, instead of borrowing in the current period, runs a governmentloan program. That is, loans are made to consumers at the market real interest rater, with the aggregate quantity of loans made in the current period denoted by L.Government loans are financed by lump-sum taxes on consumers in the current period(denoted by T), and we assume that government spending is zero in the current andfuture periods (i.e., G = G0 = 0). In the future period, when the government loansare repaid by consumers, the government rebates this amount as lump-sum transfers(negative taxes) to consumers. Hence, if we call T r0the lump sum transfers in thefuture period, then T r0 = −T0 > 0.(a) Write down the government’s current period budget constraint andits future…Exercise 5 (Borrowing Constraints and Consumption Taxes). Consider a two-period economy in which households face the borrowing constraint S p 1 ≥ 0. Suppose that the constraint is binding. In period 1, the household receives an exogenous endowment of goods Y1 = 50, and the government levies a proportional tax on consumption at the rate τ1 = 0.25 and has expenditures in goods and services in the amount G1 = 2. Firms borrow in period 1 at the interest rate r and use the funds to invest in physical capital, denoted I1. Investment becomes productive in period 2. The investment schedule is I1 = 12.5 (1 + r) ^2 1. Calculate private consumption in period 1 (C1), government saving in period 1 (S g 1 ), and national saving in period 1 (S1). 2. Calculate the equilibrium real interest rate (r).DI=Y OUTPUT/INCOME CONSUMPTION(C) SAVINGS (S) MPC MPS APC APS 0 80 ______ ____ _____ _____ _____ 100 140 _______ _____ _____ _____ __ ____ 200 200 _______ _____ _____ _____ _____ 300 260 _______ _____ ______ ______ _____ 400 320 _______ ______ ______ ______ ______ a. Complete the following chart above b. Show graphically ( what is the equilibrium level of output)? c. Assume the following general forms of a…
- Consider an economy with two periods (interpreted as “when young” and “when old” periods)and two consumers, Gillian Davis and Joana Wolinsky. Gillian is a star ballet dancer with a lifetime income given by ωG= (400,0). Joana is an Econ Ph.D. student with incomeωJ= (0,400). Gillian and Joana have identical utility functions given by Ui(x1,x2) = 6 lnx1+ 3 lnx2 for i=G, J a) Plot an Edgeworth box and mark the initial endowment point. b) Write the general definition of Pareto efficient allocation (one sentence) and give the equivalent condition in terms of MRS (give formula). Check if this condition is satisfied for initial endowments. c) Derive the contract curve (write down the appropriate conditions and solve for the curve) and depict it in the Edgeworth box. d) Suppose Gillian and Joana can “trade” consumption in both periods at pricesp1,p2. Find the competitive equilibrium (6 numbers) and depict the equilibrium allocation in the Edgeworth box. e) Using the MRS condition from part b),…You are an economic advisor to the government. Discuss your opinion . a) How COVID-19 pandemic will affect the consumption behavior as well as the investment done by the firms and household for the next two years? b) What are the actions or policies that the government can implement to face this situation? please answers with analysis and --graph (if possible)Q 1 5. Refer to the following intertemporal budget constraint of a respective consumer: a. How would this budget constraint change if individual becomes more presented oriented (he discounts future heavily)? b. How would this budget constraint change if individual faces a borrowing constraint in second period?