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 Income Required: 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 model

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 Income Required: 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 model

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter4: Estimating Demand

Section: Chapter Questions

Problem 6E

See similar textbooks

Similar questions

suppose the economy is characterized by the following behavioral equations: C=160+0.6YD, I=150, G=150, T=100. Solve the following variables: a). Equilibrium GDP (Y) b). Disposable income (YD) c). Consumption spending (C)
Suppose we have a demand model for good x. It is modelled as: Q=1450-0.38p-0.61p_y-0.0086I where I is the consumers’ average disposable income How would the consumer perceive the two goods, and with respect to consumers’ disposable incomes how would they perceive good x? Substitutes goods; normal goods Complements goods; normal goods Substitutes goods; Inferior goods Complements goods; Normal goods None of the above.
Suppose we wanted to investigate the saving and borrowing behavior of consumers. It’s not that difficult to extend our basic model. We can use the same framework as before, but define our two goods as “consumption in period 1” (horizontal axis) and “consumption in period 2” (vertical axis). a. Construct a budget constraint for a consumer who earns $100 in income in period 1 and $300 of income in period 2. Label this point E for the “Endowment” point. Assume that he can choose to save some income in period 1 to be used in period 2, or to borrow some income from period 2 to use in period 1. (Let’s imagine the consumer saves the money by putting it in a piggy bank and can borrow money from his parents, who don’t charge interest.)
According to the basic discounting principle, individuals value current consumption (i.e. consumption now) more than future consumption (i.e. consumption tomorrow). A) True B) False
Consider the two-period endowment economy we discussed in class. In this economy, a household lives for two periods and can save s. The return on saving is the real interest rate,r. Income is exogenous and given as y and y'. Households have utility overconsumption,c, in each period by U(c)=In(c)+B In(c') where future utility is discounted with rate B. Households choose consumption in both periods,c and c'. 1-Write down the current period and future period budget constraints. Derive the lifetime budget constraints. 2-What is the slope of the lifetime budget constraint? What are the intercepts? What is the significance of the endowment point? 3-Write down the expression for the consumer's optimization problem. What is the tangency condition? Provide an intuitive explanation for this condition. 4-Solve for c,c', and s. Given that B=1 and r=0, how would you modify the answers for c,c; and s? Explain.
Write down the Planner’s problem, as well as the Lagrangian. (Hint: There should be two constraints because aggregate consumption of each good cannot exceed the economy’s endowment.) Label the multipliers ϕ1 and ϕ2. What are the first order conditions of the Planner’s problem? (Hint: There should be 6.). Find the solution to the Planner’s problem and label the quantities (xpA; ypA) and (xpB; ypB). If we compare the first order conditions of the Planner’s problem to the first order conditions of a corresponding competitive equilibrium (CE), we can obtain a relationship between ϕx, ϕy, λ, px, and py so that the CE and the Planner’s problem give us the same solution. This is called decentralizing the Planner’s problem.Decentralize the Planner’s problem. (find the equilibrium prices and the value of λ so that the two problems have the same solution.) Can you relate this to the two welfare theorems?
Consider the following intertemporal consumption problem with one good and two periods. The quantity of the good consumed in period 1 and period 2 are q1 and q2. The price of each unit of the good is $1 in both periods. The consumer’s income is I1=10 in the first period and I2=12 in the second period. The consumer can borrow or save money at the interest rate of 50%, that is, r=0.50. The consumer’s utility function is u(q1,q2)= q1q2. The optimal choice of q1 is a. 9 b. 10 c. 11 And the consumer will: d. borrow 1 e. save 1 f. borrow 2 g, save 0
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. 9
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).
Q1) Sales are a function of advertising in newspapers and magazines (X, Y). S = XY2 The price of advertising in newspapers and magazines is Rs.5 and Rs.10 respectively. The total budget for advertising is Rs.105. For maximizing sales, find out the best combination of advertisements in newspapers and magazines by using the Lagrangian multiplier. (Hint: Make equation of the budget line with the help of the above information).
RM3. Quantity demanded is Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a the willingness to pay for the marginal unit. b the amount that an individual demands at a particular price level. c always combined with price levels. d all of the above are correct Which of the following would be most likely to increase consumption spending? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a A reduction in consumer credit card debt b A drop in stock prices c A higher interest rate d The expectation of lower future prices
The one-period model with quasi-linear utility predicts that a decrease in marginal income tax rates could increase tax collection if:Group of answer choices Substitution effects dominate income effects so that the percent change in taxes is greater than the percent change in GDP Substitution effects dominate income effects so that the percent change in taxes is less than the percent change in GDP Income effect dominate substitution effects so that the percent change in taxes is less than the percent change in GDP Income effects dominate substitution effects so that the percent change in taxes is greater than the percent change in GDP