Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 25.A, Problem 2TY
To determine
Calculate
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Suppose that autonomous consumption (a) is 300, private investment spending (I) is 420, government spending (G) is 400, Net taxes (T) are 400 and marginal propensity to consume (b) is 80 %, and marginal tax rate (t) is 25 %. By using the above information:
Find the equilibrium value of national income and show it on a graph
After government is added to the income-expenditure model, the formula for the aggregate consumption function is
Group of answer choices
C = a - b(T - Y).
C = a + b(Y + T).
C = a - b(Y - T).
C = a + b(Y - T).
Suppose that autonomous consumption (a) is 300, private investment spending(I) is 420, government spending (G) is 400 , Net taxes (T) are 400 and marginal propensity to consume (b) is 80 %, and marginal tax rate (t) is 25 % .
By using the above information
Find the equilibrium value of national incomeand show it on a graph.
Chapter 25 Solutions
Economics: Principles & Policy
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- Which of the following statements are correct? The introduction of government spending increases the size of the multiplier. The introduction of taxes increases the size of the multiplier. The introduction of taxes reduces the slope of the consumption function. Select one: A. A B. None of the statements is correct. C. C D. Barrow_forwardsuppose the government in this economy decides to decrease government purchases by 300 billion decrease in government purchases will lead to a decrease in income generating an initial change in consumption equal toarrow_forwardWhich of the following will increase consumption spending? Group of answer choices a housing market crash an increase in the personal income tax rate a boom in the stock market an increase in the nominal interest ratearrow_forward
- Suppose the marginal propensity to consume is 0.75, the marginal propensity to import is 0.25, there are no taxes, and total autonomous expenditure is 100. The Aggregate Expenditure function isarrow_forwardSuppose the level of autonomous investment in an economy is 200 and the consumption function is given by C=80+0.75Y. Find the equilibrium level of income What will be the increase in national income if investment is increased by 25.arrow_forwardUse the following information on economy X to answer the questions below. Consumption function: C = 250 + 0.8Y Investment spending: I = 150 Government spending: G = 500 Exports of goods and services: X = 200 Imports of goods and services: Z = 150 Proportional tax rate: t =25% Full employment level of income = 3575 Calculate the change in government spending required to reach full employment level of income.arrow_forward
- Suppose a closed economy has an intended investment of 100 and an aggregate consumption function given by C = 250 + 0.75Yd. Suppose also that the government spends 150 but collects no taxes. What is equilibrium output and income?arrow_forwardAssume a simple model with no government or foreign sector. If an increase in autonomous investment of 100 leads to an increase in consumption of 300, the size of the expenditure multiplier isarrow_forward
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