MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
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Question
Chapter 9.A, Problem 1TY
To determine
To calculate: The net exports at each level of
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In an economy, autonomous consumption expenditure is $50 billion, investment is $200 billion, and government expenditure is $250 billion. The marginal propensity to consume is 0.7 and net taxes are $250 billion. Exports are $500 billion and imports are $450 billion. Assume that net taxes and imports are autonomous and the price level is fixed.
What is the consumption function?
What is the equation of the AE curve?
Calculate equilibrium expenditure.
Calculate the multiplier.
If investment decreases to $150 billion, what is the change in equilibrium expenditure?
Describe the process in part (e) that moves the economy to its new equilibrium expenditure.
Suppose the marginal propensity to consume (MPC) is either 0.75, 0.96, or 0.62.
a. For each value of the MPC, calculate the impact of a one-dollar decrease in taxes on GDP.
Instructions: Enter your responses rounded to one decimal place.
MPC
Impact of a one-dollar decrease in taxes
0.75
0.96
0.62
b. For each value of the MPC, calculate the impact on GDP of a $250 million decrease in taxes.
Instructions: Enter your responses rounded to one decimal place.
MPC
Impact on GDP
0.75
$
0.96
$
0.62
$
Note:-
Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.
Answer completely.
You will get up vote for sure.
(Changes in Government Purchases) Assume that government purchases decrease by $10 billion, with other factors held constant, including the price level. Calculate the change in the level of real GDP demanded for each of the following values of the MPC. Then, calculate the change if the government, instead of reducing its purchases, increased autonomous net taxes by $10 billion.
0.9
0.8
0.75
0.6
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- Consider the hypothetical country of Kejimkujik. Suppose that national income in Kejimkujik is $300 billion, households pay $100 billion in taxes, household consumption is equal to $160 billion, and the marginal propensity to consume (MPC) is 0.6. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. Consumption Function050100150200250300350400450500500450400350300250200150100500CONSUMPTION (Billions of dollars)DISPOSABLE INCOME (Billions of dollars) Suppose now that Kejimkujik’s national income increases to $330 billion. Assuming the amount paid in taxes is fixed at $100 billion and that MPC = 0.6, what is the new amount of household consumption? $148 billion $219.4 billion $220.6 billion $178 billionarrow_forwardDue to an increase in consumer wealth, there is a $40 billion autonomous increase in consumer spending in the economies of Westlandia and Eastlandia. Assuming that the aggregate price level is constant, the interest rate is fixed in both countries, and there are no taxes and no foreign trade, complete the accompanying tables to show the various rounds of increased spending that will occur in both economies if the marginal propensity to consume is 0.5 in Westlandia and 0.75 in Eastlandia. What do your results indicate about the relationship between the size of the marginal propensity to consume and the multiplier?arrow_forwardConsider an economy in which the marginal propensity to consume is 0.75, prices are constant, G is initially 1,500, taxes are autonomous (not related to income) and are initially 2,000, transfer payments are initially 500, and GDP is initially 8,200. The economy is currently experiencing an inflationary gap. The government wishes to eliminate the gap and intends to reduce GDP to 7,000, and is considering changing government purchases, or taxes, or transfer payments. What new levels of these fiscal policy tools would be needed? In each case, what would the new government surplus or deficit be?arrow_forward
- Find MPC from the given consumption function Y=2+0.2Yarrow_forwardAn economy has the following consumption function: C=$200+0.8DI . The government budget is balanced, with government purchases and taxes both fixed at $1,000. Net exports are $100. Investment is $600. 1. The value of equilibrium in this model is . 2. If government spending increases by $150, the equilibrium value increases by , demonstrating a multiplier value of . 3. If both G and T rise by $150 at the same time, the equilibrium Y will increase byarrow_forward
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