MACROECONOMICS (LL)
21st Edition
ISBN: 9781260186949
Author: McConnell
Publisher: MCG
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Chapter 11, Problem 8P
Subpart (a):
To determine
The equilibrium level of real GDP .
Subpart (b):
To determine
The equilibrium level of real GDP.
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Assume that the consumption schedule for a private open economy is such that consumption C = 50 + 0.8Y. Assume further that planned investment Ig and net exports Xn are independent of the level of real GDP and constant at Ig = 30 and Xn = 10. Recall also that, in equilibrium, the real output produced (Y ) is equal to aggregate expenditures: Y = C + Ig + Xn.a. Calculate the equilibrium level of income or real GDP for this economy.b. What happens to equilibrium Y if Ig changes to 10? What does this outcome reveal about the size of the multiplier?
Suppose in a closed economy with positive national saving, consumption is 70% of GDP, taxes net of transfers are 30% of total consumption and investment, and government spending is less than investment. Which of the following statements is true?
(a) Public saving is greater than private saving.
(b) Private saving is 9% of GDP.
(c) Public saving is less than 10% of GDP.
(d) Investment is less than 10
Also give Why other False.
Assume that GDP (Y ) is 5,000 in a closed economy. Consumption (C) is given by the equationC = 1,200 + 0.6(Y −T)−100r, where r is the real interest rate, in percent. Investment (I) is givenby the equation I = 2,000 − 200r. Taxes (T) are 1,000, and government spending (G) is 1,500.(a) What are the equilibrium values of C, I, and r? (b) What are the values of private saving, public saving, and national saving? (c) For the given consumption function, what does the relationship between consumption and theinterest rate imply about the saving schedule?
Chapter 11 Solutions
MACROECONOMICS (LL)
Ch. 11.2 - Prob. 1QQCh. 11.2 - Prob. 2QQCh. 11.2 - Prob. 3QQCh. 11.2 - Prob. 4QQCh. 11.7 - Prob. 1QQCh. 11.7 - Prob. 2QQCh. 11.7 - Prob. 3QQCh. 11.7 - Prob. 4QQCh. 11 - Prob. 1DQCh. 11 - Prob. 2DQ
Ch. 11 - Prob. 3DQCh. 11 - Prob. 4DQCh. 11 - Prob. 5DQCh. 11 - Prob. 6DQCh. 11 - Prob. 7DQCh. 11 - Prob. 8DQCh. 11 - Prob. 1RQCh. 11 - Prob. 2RQCh. 11 - Prob. 3RQCh. 11 - Prob. 4RQCh. 11 - Prob. 5RQCh. 11 - Prob. 6RQCh. 11 - Prob. 7RQCh. 11 - Prob. 8RQCh. 11 - Prob. 9RQCh. 11 - Prob. 1PCh. 11 - Prob. 2PCh. 11 - Prob. 3PCh. 11 - Prob. 4PCh. 11 - Prob. 5PCh. 11 - Prob. 6PCh. 11 - Prob. 7PCh. 11 - Prob. 8PCh. 11 - Prob. 9PCh. 11 - Prob. 10P
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- Only typed answer Given the following for the economy of a country: Consumption function: C=90+0.75Yd. Investment function: I=75. Government spending: G=100. Net export: NX=50. Net taxes: T=50. Disposable income: YdY-T. Equilibrium: Y=C+I+G+NX. a. Solve for equilibrium income. Show your work below. b. If autonomous investment decreases by 60, what is the new level of income? Show your answer on the same graph. Show your work below. c. What is the value of the spending multiplier? Show your work below.arrow_forwardAssume that total expenditure E comprises the sum of government consumption, G, household consumption, C, and investment, I. Assume a closed macroeconomic system, so that income equals expenditure Y=E. If we define household saving, SH, as SH=Y-T-C, where the cunsumption function is a fixed proportion of disposable income, C=c(Y-T), which of the following will be true? a. Higher government spending alongside unchanged taxation will lead to higher investment and higher household saving b. Higher government spending alongside unchanged taxation will have no effect on household saving or investment c. Higher government spending alongside unchanged taxation will lead to higher household saving d. Higher government spending alongside unchanged taxation will lead to lower household savingarrow_forwardQUESTION 14For an open economy, which of the following expressions represents private saving (S)? investment plus tax revenues less government expenditure plus net exports, I + T – G + NXI + T – G – NXI + G + NXG – T + NX – In one of the abovearrow_forward
- Assume that total expenditure E comprises the sum of government consumption, G, household consumption, C, and investment, I. Assume a closed macroeconomic system, so that income equals expenditure Y=E. If we define household saving, SH, as SH=Y-T-C, where Y is national income and T is total taxation, which of the following will be true? a. SH=I+G b. SH=I-G-T c. SH=I+(G-T) d. SH=Iarrow_forwardSuppose the following equations represents a closed economy: Y= C + I + G Y = 4000 G = 500 T = 500 C = 500 + 0.7 (Y – T) I = 1000 – 40r In this economy, compute the value of consumption (C), private saving, public saving, and national saving. Also, find the equilibrium interest rate (r). Now suppose that government spending (G) rises (expansionary fiscal policy) to 300. Compute private saving, public saving, and national saving. Also, find the new equilibrium interest rate (r). In part (b), due to expansionary fiscal policy (increase in government spending), which of the two other components of aggregate demand changes, C or I? Why? (Hint: Note the real interest rate)arrow_forwardIn a closed economy with fixed prices and wages and where the marginal propensity to consume of the rich is smaller than that of the poor, a transfer of income from the rich to the poor will 3 a. Increase equilibrium level of output but reduce private savings b. Decrease equilibrium level of output but increase private savings c. Increase in output and an increase private savings d. Decrease in output and a decrease in private savingsarrow_forward
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