Solve for equilibrium where: • NT = tY = 0.15Y • C = Co + cYD = 20 +0.8YD o lo = 100 o Go = 100 Explain the effect taxes have on the multiplier.
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- Theoretically, a decline in G such as the one in the first question leads to a change in equilibrium Y, Ye. First, give the simple equation for how much a change in autonomous government spending changes Ye. Second, we expect that the fall in G will lead to a fall in Ye that is even greater in dollars than the change in G and this will be due to the multiplier effect. Please explain how this multiplier effect (not the multiplier itself but rather the process that shows how spending ripples down through the economy) where a rise in G of $100 billion leads to a change in Ye of more than $100 billion. Once done, answer the following: if the size of the MPS rises as people become more concerned about the possible coming recession what will happen to the amount by which Ye changes with a given rise in G? Explain in words why this change makes sense.Consider the following macroeconomy. All amounts are in millions (m.) of $: C = 750 + 0.8 YD I = 1200 G = 150 T = 250 Calculate eqm Y and prove that I=sum of S at this equilibrium. What is meant by the “Paradox of Thrift” (POT)? Go back to the original eqm of part a. Now prove using multiplier analysis that the POT holds in this economy by assuming that the change in co is -$50 m. As part of your answer, explain “intuitively” why this paradox exists. Show what happens in the Z-Y space graph.Given: C = 250 + 0.8 Y I = 150 G = 300 TR = 100 NX = 100 t =0.25 i) Find the equilibrium level of income. ii) Suppose, because of current COVID-19 situation C falls to 50, MPS falls to .05, I falls to 10, G falls to 100 and NX falls to 10. How much TR should the government increase to have the same level of equilibrium income as in part i)? iii) In determining the required change in TR in part ii), which multiplier did you use and why? (Hint: keep in mind the consumption tendency households may have under the COVID 19 situation in selecting the multiplier). iv) Draw a graph to show the appropriate changes between part i) and part ii). v) Give an example related to current Bangladeshi situation where the government may follow a 'Transfer Promoting Policy' instead of a 'Growth Promoting Policy' in determining who gets the transfer payment. vi) Instead of paying transfer (TR) if the government were to increase government spending (G), what type of crowding out would you expect? Briefly…
- Assume: Y= C + I + G + NX C = 400 + (0.8)YD Io = 200 G = 300 + (0.1)(Y* - Y) YD = Y - TA + TR NXo = - 40 TA = (0.25)Y TRo = 50 From the model above you can see that government purchases (G) are counter-cyclical, that is, G is increased as national income decreases. If you compare this specification of G with one that has a constant level of government spending (for example, Go = 300), how would the value of the expenditure multiplier differ?i need this in word not handwritten Q7. Assume that in 2015, the following prevails in the Republic of Nurd: Y = $200 G = $0 C = $160 T = $0 S = $40 I (planned) = $30 Assume that households consume 80 percent of their in- come, they save 20 percent of their income, MPC = 0.8, and MPS = 0.2. That is, C = 0.8Yd and S = 0.2Yd. Is the economy of Nurd in equilibrium? What is Nurd’s equilibrium level of income? What is likely to happen in the coming months if the government takes no action? 2. If $200 is the “full-employment” level of Y, what fiscal policy might the government follow if its goal is full employment? 3. If the full-employment level of Y is $250, what fiscal policy might the government follow? 4. Suppose Y = $200, C = $160, S = $40, and I = $40. Is Nurd’s economy in equilibrium? 5. Starting with the situation in part d, suppose the government starts spending $30 each year with no taxation and continues to spend $30 every period. If I remains constant, what…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 fall
- Suppose a closed economy with no government spending which in equilibrium is producing an output and income of 2500. Suppose also that the marginal propensity to consume is 0.80, and that, if at full employment, the economy would produce an output and income of 3900 By how much would the government need to cut taxes (T) to bring the economy to full employment?Given: C = 250 + 0.8 Y I = 150G = 300TR = 100NX = 100t =0.25i) Find the equilibrium level of income.ii) Suppose, because of the current COVID 19 situation Ꞓ falls to 50, MPS falls to .05, I falls to 10, G falls to 100 and NX falls to 10. How much TR should the government increase to have the same level of equilibrium income as in part i)?iii) In determining the required change in TR in part ii), which multiplier did you use and why? (Hint: keep in mind the consumption tendency households may have under the COVID 19 situation in selecting the multiplier).iv) Draw a graph to show the appropriate changes between part i) and part ii).v) Give an example related to current Bangladeshi situation where the government may follow a 'Transfer Promoting Policy' instead of a 'Growth Promoting Policy' in determining who gets the transfer payment.vi) Instead of paying transfer (TR) if the government were to increase government spending (G), what type of crowding out would you expect? Briefly…If the Marginal Propensity to Consume (MPC) is .90, estimate the total (multiplied) effect of government purchases/spending of $100B in the economy in terms of its aggregate expenditure (Hint: Multiplier = 1 / 1 – MPC). Calculate the net cumulative change in aggregate expenditure if taxes were cut by $200 billion and MPC is estimated to be .75. What if government expenditure was increased by $200 billion? (Hint: Total change in expenditure = multiplier x new expenditure or spending injection)
- Suppose that due ot a fiscal stimulus, there is an increase in disposable incomes of $100 billion in the first round. Then, $33 billion was spent in consumption from this initial change of the disposable incomes. Following the same marginal propensity to consume, how much is the change in consumption spending in the next round from the $33 billion?7 Suppose a closed economy with no government spending which in equilibrium is producing an output and income of 1100. Suppose also that the marginal propensity to consume is 0.80, and that, if at full employment, the economy would produce an output and income of 3850 By how much would the government need to cut taxes (T) to bring the economy to full employment? (round your answer to the nearest whole value)2. Given:C = 250 + 0.8 Y I = 150G = 300TR = 100NX = 100 t =0.25i)Find the equilibrium level of income.(ii)Suppose, b10, G falls to 100 and NX falls to 10. How much TR should the government increase to have the same level of equilibrium income as in part i)?(iii)In determining the required change in TR in part ii), which multiplier did you use and why? (Hint: keep in mind the consumption tendency households may have under the COVID 19 situation in selecting the multiplier).(iv)Draw a graph to show the appropriate changes between part i) and part ii).(v)Give an example related to current Bangladeshi situation where the government may follow a 'Transfer Promoting Policy' instead of a 'Growth Promoting Policy' in determining who gets the transfer payment.(vi)Instead of paying transfer (TR) if the government were to increase government spending (G), what type of crowding out would you expect? Briefly explain.(vii) As we have observed recently that, a lot of the assistance from the…
