Suppose real GDP is $500 billion below potential GDP and that the marginal propensity to consume equals 0.5. By how much must autonomous spending change for the economy to move to potential GDP?
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A: Answer; = $ 90 billion
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Q: 1. The Marginal Propensity to Consume (MPC) equals: A. 0.70 B. 0.75 C. 0.80 D. 0.85
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A: Given: MPC = 0.8 MPI= 0.10 Tax rate= 0.25 Increase in autonomous spending = 250 units.
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- Assume a closed economy in which, there is no government. If ouput (income) is 800,autonomous consumption is 100, and marginal propensity to consume is 0.70 in this economy.Then calculate the the amount of consumption spending?Autonomous consumption = R100m Investment spending = R300m Government spending = R200 million Exports = R150 millionAutonomous imports = R100 million Marginal propensity to consume =2/3 Tax rate = 1/10Marginal propensity to import = 1/10 Yf = R2 150 million Calculate the level of autonomous spending in this economy?Autonomous consumption = R100m Investment spending = R300m Government spending = R200 million Exports = R150 millionAutonomous imports = R100 million Marginal propensity to consume =2/3 Tax rate = 1/10Marginal propensity to import = 1/10 Yf = R2 150 million. Calculate the change in government spending required to reach full employment in the economy.
- Note: I need help with parts d, e, and f only Following is information for the economy of Sparkle. All units are milliondollars. Their autonomous consumption is $700, and the marginal propensity to consume is 0.8.Investment spending is constant at $380, and government expenditure is constant at $300.Exports are constant at $500, and imports are constant at $800. Net taxes are constant at $100.Calculate and state your answers for the following questions.a) What is the value of consumption in this economy when the real GDP is $1100?b) What is the value of autonomous aggregate planned expenditure i.e. AE0?c) What is the value of equilibrium aggregate expenditure for this economy?d) What is the value of unplanned changes in the inventory investment when real GDP is$4000?e) What is the size of the multiplier in this economy?f) If investment spending increases by $50, what would be the value of the change in theequilibrium real GDP?We again assume asimple closed economy with GDP of 100 and:c0(autonomous consumption) = 20c1 (marginal propensity to consume) = 0.6I (investment) = 20.a) Now assume that c0falls by 5 (i.e. 5% of GDP), i.e. for any given level of output,consumption will fall by 5. Show the implied fall in the AD function in yourdiagram and show that output will fall by more than 5.b) Show that the multiplier is equal to 2.5, and hence that, in the new equilibrium,output will have fallen by 12.5 (i.e. by 12.5%)c) How big would the impact be if, say, c1 = 0.4 or c1 = 0.8? Explain the difference.Assume in country Y, the average marginal propensity to save is 0.2. When the aggregateincome is zero, consumers spend 50 to consume. Derive the saving function and consumptionfunction for this country. What happens to consumption when the propensity to savedecreases to 0.1? Explain your answer and show this on the graph.
- You are given data on the following variables in an economy: Government spending 300 Planned investment 200 Net exports 50 Autonomous taxes 250 Income tax rate 0.1 Marginal propensity to consume 0.5 Use the data above to answer the following questions. Consumption (C) is 600 when income (Y) is equal to 1500. Solve for autonomousconsumption. Solve for the equilibrium level of output in the following two scenarios: there isan income tax t=0.1, there is no income tax in the economy. Denote these two variablesby and respectively. In the economy with an income tax of 10%, what is the budget balance of thegovernment? Solve…For each of the following, please explain each step and show it in the graph! b. The Marginal Propensity to Consume (MPC) is 0,8 and the government wants total spending to increase by $40 Billion. How much the multiplier and initial spending must the government do to achieve the goal? (Assume economy is at full employment and economist ignore possibility of crowding out effect)Suppose we have the following consumption function in an economy C = 2000 + 0.9YD. Howmuch government spending has to be increased in order to have an increase in equilibriumoutput equal to 1000? a. 100.b. 200.c. 250.d. 1000.e. none of these.f. do not have adequate information.
- Assume that in 2015, the following prevails in theRepublic of Nurd:Y = $200 G = $0C = $160 T = $0S = $40I (planned) = $30Assume that households consume 80 percent of their income, they save 20 percent of their income, MPC = 0.8,and MPS = 0.2. That is, C = 0.8Yd and S = 0.2Yd.a. Is the economy of Nurd in equilibrium? What is Nurd’sequilibrium level of income? What is likely to happen inthe coming months if the government takes no action?b. If $200 is the “full-employment” level of Y, what fiscal policy might the government follow if its goal is fullemployment?c. If the full-employment level of Y is $250, what fiscalpolicy might the government follow?d. Suppose Y = $200, C = $160, S = $40, and I = $40. IsNurd’s economy in equilibrium?e. Starting with the situation in part d, suppose the government starts spending $30 each year with no taxationand continues to spend $30 every period. If I remainsY C I G X $ 100 $ 120 $ 20 $ 30 $ 10 $ 300 $ 300 $ 20 $ 30 - $ 10 $ 500 $ 480 $ 20 $ 30 - $ 30 $ 700 $ 660 $ 20 $ 30 - $ 50 a.What is the multiplier? b.What is the equilibrium level of the real GDP? c.What is the value of autonomous consumption?For the following economy, find autonomous expenditure, the multiplier, short-runequilibrium output,and the output gap. By how much would autonomousexpenditure have to change to eliminate the output gap?C= 400 + 0.8 (Y – T )I p= 200G= 140NX= 60T= 100Y*= 4,000Find the multiplier, output gap and change in autonomous expenditure toeliminate the output gap.