Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Question
Chapter 11, Problem 2QQ
To determine
The equilibrium income.
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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. (solve three tasks)
Graph planned expenditure as a function of income.
What is the equilibrium level of income?
If government purchases increase to 125, what is the new equilibrium income?
n 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.)
In the Keynesian cross model, assume that the consumption function is given by
C = 20 + 0.8(Y- T).
Planned investment is 200; government purchases and taxes are both 400. There is no foreign trade.
An economist has claimed that the full employment level of output is 2,400. How much should the government expenditure or taxes rise or fall to achieve full employment?
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- Assume that the marginal propensity to consume is 0.6 and potential output is $1000 billion. If real GDP is $1100 billion: Select one: a. there is an inflationary gap. b. the economy is in long-run equilibrium. c. there is a recessionary gap. d. government transfers should be decreased.arrow_forwardGiven a simple Keynesian spending multiplier of 2, how will GDP (Y) change when business investment increases by $15 billion, exports increase by $5 billion, and government spending drops by $10 billion? Y increases by $20 billion. Y decreases by $20 billion. Y decreases by $10 billion. Y remains unchanged.arrow_forwardIn 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. What is the equilibrium level of income? B. If government purchases increase to 125, what is the new equilibrium income? C. What level of government purchases is needed to achieve an income of 1,600?arrow_forward
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