the following holds in an economy: YP = $20 Trillion, YActual = $20 Trillion, MPC = 0.6, SRAS is perfectly elastic. a) Use an AD-AS diagram to depict the economic scenario described. b) Suppose there is a $0.2 Trillion increase in autonomous consumption spending. Further suppose there are no taxes. What would be the ultimate effect on YActual? Draw a new diagram to depict this shock and resulting short-run macroeconomic equilibrium. c) Again suppose there is a $0.2 Trillion increase in autonomous consumption spending (starting from the baseline case you depicted in part a). Further suppose there are taxes and the tax rate is 30%. What would be the ultimate effect on YActual? Draw a new diagram to depict this shock and resulting short-run macroeconomic equilibrium. %3D %3D

the following holds in an economy: YP = $20 Trillion, YActual = $20 Trillion, MPC = 0.6, SRAS is perfectly elastic. a) Use an AD-AS diagram to depict the economic scenario described. b) Suppose there is a $0.2 Trillion increase in autonomous consumption spending. Further suppose there are no taxes. What would be the ultimate effect on YActual? Draw a new diagram to depict this shock and resulting short-run macroeconomic equilibrium. c) Again suppose there is a $0.2 Trillion increase in autonomous consumption spending (starting from the baseline case you depicted in part a). Further suppose there are taxes and the tax rate is 30%. What would be the ultimate effect on YActual? Draw a new diagram to depict this shock and resulting short-run macroeconomic equilibrium. %3D %3D

Macroeconomics: Principles and Policy (MindTap Course List)

13th Edition

ISBN:9781305280601

Author:William J. Baumol, Alan S. Blinder

Publisher:William J. Baumol, Alan S. Blinder

Chapter8: Aggregate Demand And The Powerful Consumer

Section: Chapter Questions

Problem 8DQ

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If MPC = .8, actual GDP = $5,000 and potential GDP = $4,900, there is a __________(recessionary / inflationary) gap of $_____ and a _________ (decrease / increase) in personaltaxes of $______ would eliminate the gap.
If MPC =2/3, actual GDP = $14,000 and potential GDP = $13,100, there is a __________(recessionary / inflationary) gap of $_____ and a _________ (decrease / increase) in personal taxes of$______ would eliminate the gap.
Consider the following initial conditions (where all dollar amounts are in billions): C = 600 + 0.6y D , I = 400, G 1 = 300, T 1 = 200 A. Given these initial conditions, calculate y*. Draw a rectangle around the expenditure equation resulting from step I and your calculated y* in step II. Draw a graph showing the total expenditure (E) curve and y*. Label y*, E*, and the E-intercept of the expenditure equation. If yF were $3,100, would the economy be in a recessionary gap or an inflationary gap? What is the size of the gap? Label yF and show the gap on the graph from B. If the government were to try to close the gap by changing the level of government spending, how much of a change (∆G) would be necessary to close the gap? What would be the new level of government spending (G2 )? What is the new expenditure equation (draw a rectangle around it)? On the graph from part B, draw the new expenditure curve, E2 , and label the new y* and the new E intercept. Alternatively, if the…
The Expenditure multiplier occurs because A. a change in autonomous expensitures changes household incomes B) a change in autonomous expensitures causes real GDP to change in the opposite dirrection C) a change in households incomes changes autonomous expensitures D) any change in real GDP must also change the price level E) goverment expenditure on goods and services change by a proportional amount to government taxes
Nigeria is currently experiencing a recessionary gap of approximately 24.6 billion krone. Its MPC is approximately 0.8. How much would the government have to change spending to close the gap? Assume a horizontal SRAS. If the government should decrease spending, enter a negative answer. one decimal pl
Assume the following model of the expenditure sector: S=C+I+G+Nx TR=100 C=420+(4/5)YD I=160 G=180 Nx=-40 YD=Y+TR-TA TA=(1/6)Y If the government would like to increase the equilibrium level of output (Y) to the full employment level Y*=2,700, by how much should government purchases (G) be changed?
Consider an economy described by the following set of equations: c = 120 +0.08Y I = 320 G = 480 X-IM = -80 T = 400 a. Find the actual level of GDP. b. If full employment comes at Y = 1000, would there be a recessionary gap or an inflationary gap? c. What spending changes will be necessary to eliminate this gap? d. What amount of tax changes will be necessary to eliminate this gap? e. What are some policies action that can be taken.
can you please answer strating form D to F Given the information below, answer the questions that follow. C = $40 + 0.8Y I = $30 G = $40 X – M = -$10 a) What is the equilibrium GDP? Explain why $550 is not the equilibrium. b) What is the marginal propensity to consume (MPC) in this question? (Explain) c) What is the multiplier in this question and explain the significance of the multiplier? (Show all work) d) Assuming that the full employment level of output is $600, what kind of gap exists and how large is it? Explain e) If transfer payments increased by $10 and the price level did not change, what would the new equilibrium be? (Show all work) f) How would your answer to part (e) change if the price level did change?
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?
Derive the consumption function and use this relation in the aggregate demand function to derivean equation for the equilibrium in the goods market . Why the AD line is upward sloping?Suppose the government spending falls by 100 and in this case marginal propensity to consumeis 0.8. what is the value of change in output. Draw a diagram to show the shift in AD line due tothis change in government spending and output.
Autonomous Consumption R535mMarginal propensity to consume is 0.75Investment Spending R322mGovernment Spending R300mImports R175m + 0.08YExports R283mTaxes = 0.1YFull employment level of output is R3 483m Calculate the value of induced imports in thiseconomy, given the equilibrium level of output.
Autonomous Consumption R535mMarginal propensity to consume is 0.75Investment Spending R322mGovernment Spending R300mImports R175m + 0.08YExports R283mTaxes = 0.1YFull employment level of output is R3 483m Calculate the equilibrium level of income in this economy.