Suppose consumption is described by C=a+b(Y-T), planned investment is I, and planned governmen spending and taxes are G and T, respectively. Keeping taxes constant, by how much should the government increase its spending G if it wants to increase equilibrium income by X in the Keynesian cross model? O a. (1-b)X O b. X/(1-b)
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- 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 1n 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.)Consider an economy that works acoording to the classical model, and the Fisher equation holds for the money market. In this economy the consumption function is C(Y-T)=250+0.75(Y-T), the investment function is I(r)=1000-50r, where Y is income, T is net taxes and r is real interest rate. The government spends 1100 units of output on goods and services and coolects 1000 units as taxes. The labor supply is 1000, while the capital stock is 2500 units. The production function of this economy can be described as Y=K0.5L0.5. The economy is in its long-run equilibrium. The velocity of money is 2, while nominal supply of money is 6000. a) Calculate the equilibrium interest rate of this economy. b) Calculate the price level. c) What is the real wage at which the labor market is at equilibrium? What is the nominal wage? Plzzz give answer of all questions.
- Consider a closed economy with no government, where aggregate demand is determined by autonomous consumption, investment (which is independent of output), and the marginal propensity to consume. a) Given that autonomous consumption is 20, investment is also 20, and the marginal propensity to consume is 0.6, write out an equation for aggregate demand (AD) in this economy. b) Given this aggregate demand equation, and the equilibrium equation Y = AD, use algebra to find the equilibrium level of Y. (2 marks) c) Draw a diagram with output (Y) on the x-axis and aggregate demand (AD) on the yaxis. Draw two lines on this diagram: (i) Y = AD, and (ii) the aggregate demand function from part (a). Label the intercept of the AD line, and the point where the two lines intersect, with numerical values. d) Suppose that the marginal propensity to consume falls from 0.6 to 0.5. What would the new equilibrium level of Y be? Illustrate your answer in the diagram you drew for part (c). e)…n the Keynesian cross, assume that the consumption function is given byC = 200 + 0.75 (Y - T).Planned investment is 100; government purchasesand taxes are both 100.a. Graph planned expenditure as a function ofincome.b. What is the equilibrium level of income?c. If government purchases increase to 125, whatis the new equilibrium income?d. What level of government purchases is neededto achieve an income of 1,600?Recall the Keynesian Cross is the foundation to derive the IS curve. Suppose we have a simple closed economy. The cross of planned expenditure (PE) and the equilibrium condition (PE = Y) of this economy shows the equilibrium level of national output in the goods market. Here we assume the consumption (C) is a function of • C = 120 + 0.75(Y-T); Here the marginal propensity to consume (MPC) equals 0.75. Planned investment (I) is 200; government purchases (G) and taxes (T) are both 400. Use the conditions given, finish the following questions. (1) What is the equilibrium level of national income? Show step-by-step solution. Tip: recall the definition of planned expenditure (PE). At equilibrium, actual expenditure (Y) equals planned expenditure. (2) If government expenditures increase to 500, ceteris paribus (other things being equal), what is the new equilibrium income? What is the multiplier for government purchases? How much is the change of national income from the increase in…
- Assume that the economy, as represented by the simple Keynesian model, is in equilibrium with income equal to $6 million and consumption spending equal to $5 million. Which of these is correct? O Investment is $1 million. There is no saving in this economy. The economy will go into disequilibrium because consumption is not equal to income. The information provided is insufficient to determine the level of investment spending.The 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…Assume that an economy is experiencing simultaneous equilibrium in both the product market and money market. Furthermore, assume the MPC is currently around a normal level of 0.65 and the sensitivity of real money demand to also around a normal level. Based on this information, answer the following questions: b) What is meant by the term crowding out? In your answer also explain the implications of crowding out for the macroeconomy. (***explanation of crowding out where the concept is clearly defined and implications for the macroeconomy are fully discussed) c) If the MPC rises to 0.8 and also the sensitivity of real money demand to changes in the income rises well, use the IS-LM model to illustrate the impact of expansionary fiscal policy. Label the initial point prior to the fiscal policy as A and the new point following the expansionary policy as B. (***Correct fully labeled IS-LM Model shown including adjustment from the diagram in a) and correct position of points A and B.)
- If the Keynesian consumption function were C = 2,000 + 0.75YD , what would the value of the tax multiplier be, and how much would equilibrium $output/$income, Y, change if taxes were decreased by 200? Group of answer choices A) Tax multiplier = - 4 ; change in Y = + $160 B) Tax multiplier = - 5 ; change in Y = + $1,000. C) Tax multiplier = - 4 ; change in Y = + $800. D) Tax multiplier = - 5 ; change in Y = + $4,000. E) Tax multiplier = - 3 ; change in Y = + $600.Consider the Aggregate expenditure model. Where:AD = C + I + G + NX (1)where I, G, and NX are all autonomous.C = C + c∗(Y + T R − T A)(2)where T A = tY with t ∈ [0, 1] is the proportional tax rate and c∗ ∈ (0, 1) is themarginal propensity to consume.a. Using the information above, solve for AD. Combineall the autonomous terms into one term, A. b. In an (x, y) plane, where Y is on the horizontal axis and AD is on thevertical axis, illustrate the AD curve you derived above along with the 450line.Make sure to explain how you got the Y-intercept and solve for the slope c. Provide an economic interpretation for the slope of the AD function. d. Solve for the equilibrium level of output and show what happens to outputwhen G increases by 1 unit. That is, what is ∆Y ? Show your result graphicallyand explain how the AD curves shifts and by how much. Briefly explain.(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?