PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Chapter 13, Problem 3RQ
To determine
Explain the components of planned expenditure and the reason for change in planned spending as the output changes.
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If planned aggregate expenditure is greater than total production
actual inventories will equal planned inventories.
firms will experience an unplanned increase in inventories.
GDP will increase.
the economy is in equilibrium.
During the 2012 fiscal year, households in an economy spent 80 per cent of their disposable income on consumption as well as GH¢300 consumption expenditure which is independent of income. Total government expenditure which stood at GH¢800 was supposed to be financed from a proportional tax levy of 50 per cent of national income and a VAT of GH¢100. Total private investment spending was made up of GH¢400 whereas export was GH¢400 and anautonomous import of GH¢500. Also, marginal propensity to import was 0.15
Determine the equilibrium national income for this economy.
During the 2012 fiscal year, households in an economy spent 80 per cent of their disposable income on consumption as well as GH¢300 consumption expenditure which is independent of income. Total government expenditure which stood at GH¢800 was supposed to be financed from a proportional tax levy of 50 per cent of national income and a VAT of GH¢100. Total private investment spending was made up of GH¢400 whereas export was GH¢400 and anautonomous import of GH¢500. Also, marginal propensity to import was 0.15.1. Determine the equilibrium national income for this economy.2. Determine the consumption and savings levels at equilibrium national income.3. Find the size of the (expenditure) multiplier.4. Determine the new equilibrium level of income if government expenditure increases by GH¢70.5. If full employment output is 2000, what macroeconomic problem does this economy face? 6. In what direction should government expenditure change in order to achieve full employment output? 7. Determine…
Chapter 13 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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- Which of the following is a valid explanation of the expenditure line shift from E1 to E2 in Exhibit 24-2? A decline in government purchases An increase in taxes An increase in the interest rate A decline in the value of the dollar A fall in world interest ratesarrow_forwardHome equity is the single largest component of net wealth for most families in the United States. If home equity falls a. autonomous consumption will decrease, shifting the aggregate planned expenditure line downward b. the marginal propensity to consume will decrease, decreasing the slope of the aggregate planned expenditure line c. autonomous consumption will increase, shifting the aggregate planned expenditure line upward d. the marginal propensity to consume will decrease, increasing the slope of the aggregate planned expenditure line e. autonomous consumption will decrease, shifting the aggregate planned expenditure line upwardarrow_forwardQ9. For each of the following sets of data, determine if output will need to increase, decrease, or remain the same to move the economy to equilibrium: Y=1,000;C=100+0.75(Y-T);I=200;G=150;T=100 ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 2. Y=5,000;C=200+0.9(Y-T);I=500;G=400;T=300…arrow_forward
- Depict graphically the equilibrium level of National Product (NP) using the Aggregate Expenditure (AE) function. Explain why the intersection of the 45 degree line and the AE function represents equilibrium by appealing to the difference between actual and desired investmenarrow_forwardIn an economy with no government and no foreign sectors, autonomous consumer spending is $250 billion, planned investment spending is $350 billion. Suppose that in general, consumers save a third of any additional disposable income they have. Plot the aggregate consumption function and planned aggregate spending.arrow_forwardKeynesian economics predicts that if government policy makers deem current equilibrium real Gross Domestic Product (GDP) to be "too low," then an appropriate policy action would be to do nothing, because the economy is self-adjusting. raise government spending, thereby increasing aggregate demand and pushing up real Gross Domestic Product (GDP) with little or no inflationary consequences. increase taxes, thereby causing aggregate demand to increase and inducing a rise in real Gross Domestic Product (GDP) with little or no inflationary consequences. reduce the money stock, thereby causing aggregate demand to decrease and inducing a rise in fall in the price level that generates an increase in total planned expenditures.arrow_forward
- Consider a closed economy to which the Keynesian-cross analysis applies. Consumption is given by the equation C = 200 + 2/3(Y – T). Planned investment is 300, as are government spending and taxes. What happens to unplanned inventory investment? Should equilibrium Y be higher or lower than 1,500?arrow_forwardEquilibrium in the goods market requires that Aggregate Output equals Aggregate Expenditures. Given that Consumption = Disposable Income minus Private Savings, mathematically prove that equilibrium in the goods market requires Investment (I) to equal national savings (S) -- hence the IS curve.arrow_forwardSolve for Y2 in the two-period consumption model with the following given information: Y1 = 1,100 r = 3% C1 = 1,250 C2 = 1,400arrow_forward
- Aggregate consumption will certainly increase if Group of answer choices income increases and wealth decreases. interest rates increase and consumer confidence about the future strengthens. income increases and interest rates decrease. interest rates increase and household wealth increases.arrow_forwardIf unplanned change in inventory is zero aggregate output is positive when planned aggregate expenditures are positive. aggregate output is less than planned aggregate expenditures. aggregate output is greater than planned aggregate expenditures. aggregate output equals planned aggregate expendituresarrow_forwardWhich of the following is a reason why increases in the price level results in a decline in aggregate expenditure? Price level increases raise real wealth which causes consumption spending and aggregate expenditures to decline. Price level increases cause firms and consumers to hold more money, which raises the interest rate. Higher interest rates lower consumption and planned investment expenditures, which lowers aggregate expenditures. Price level increases in the U.S. relative to other countries, raise net exports, which lowers aggregate expenditures. As the price level rises, government spending falls, which lowers aggregate expenditures.arrow_forward
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