MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
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Chapter 9.B, Problem 3TY
To determine
To calculate: The equilibrium
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Suppose the United States economy is represented by the following equations:
Z = C + I + G C = 500 + .5YD T = 600 I = 300
YD = Y - T G = 2000
a. Given the above variables, calculate the equilibrium level of output.
b. Now, assume that taxes increase from 600 to 700. What is the new equilibrium level of output? How much does income change as a result of this event? What is the multiplier for this economy?
Suppose the United States economy is represented by the following equations:
Z = C + I + G C = 500 + .5YD T = 600 I = 300
YD = Y - T G = 2000
Given the above variables, calculate the equilibrium level of output.
Now, assume that taxes increase from 600 to 700. What is the new equilibrium level of output? How much does income change as a result of this event? What is the multiplier for this economy?
Describe the multiplier effect and its effects on the economy of a tourism destination. Use your own words and povide at least two examples.
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- Opening the economy to trade tends to increase the multiplier because an increase in expenditure leads to more exports. Please explain. True or Falsearrow_forwardIn Goa, India, the multiplier effect of iron ore exports is calculated to be 1.62 (Ta, 2003). Calculate the impact of an additional 1,000 rupees of iron ore exports on the economy of Goa.arrow_forwardConsider a hypothetical economy where there are no taxes and no international trade. Households spend $0.60 of each additional dollar they earn and save the remaining $0.40. If there are no taxes and no international trade, the oversimplified multiplier for this economy is __________. Suppose investment spending in this economy increases by $250 billion. The increase in investment will lead to an increase in income, generating an increase in consumption that increases income yet again, and so on. Fill in the following table to show the impact of the change in investment spending on the first two rounds of consumption spending and, eventually, on total output and income. Now consider a more realistic case. Specifically, assume that the government in our hypothetical economy collects income taxes. In this case, the multiplier will be ______ (options: the same as, smaller than, larger than) the oversimplified multiplier you found earlier. Suppose that the price level in our…arrow_forward
- Find out the value of the multiplier if the MPC is zero?arrow_forwardWhich of the following is a true statement about the multiplier? The formula for the multiplier overstates the real world multiplier when we take into account the impact of changes in GDP on imports, inflation and the interest rate. The larger the MPC, the smaller the multiplier. The multiplier is the ratio of the change in spending to the change in GDP. The multiplier makes the economy less sensitive to changes in autonomous expenditure.arrow_forwardBased on the following information: C = 40 + 0.7Yd, T = Tg – R, I = 200, G = 350, Tg = 60, R = 40 calculate the equilibrium level of income (Ye). calculate the value of kG, kTg and kR, where k is the multiplier.. calculate the values of C, S and T at Ye level. calculate the new equilibrium level of income if I increases by 10 percent. if G increases to 550 units and it is fully funded by the rise in T, what is the impact on Ye? if Tg increases to 85 units and R increases to 50 units, what is the effect on the level of Ye? Given the following information. C = 600 + 0.8Yd , Yd = Y – T, Tg = 100, I= 200, R = 50, G = 350, X = 250 and M = 200 + 0.1Y. Calculate the equilibrium level of income (Ye). Show the equilibrium level of income by using diagrams of both aggregate expenditure-income (AE-Y) approach and injection-leakage approach, How much investment should be increased if the government wants to increase the national income by 2000? How much tax has to be reduced so that…arrow_forward
- Consider the following model of an economy with no international trade, and in which the price level is fixed: C = 40 + (8/9)∙DI I = 30 G = 30 Taxes = (1/8)∙GDP where C is consumption demand, DI is disposable income, I is planned investment, G is government purchases, and all whole numbers are in billions of dollars. Determine the equilibrium level of production (GDP) in this economy (show your work), and draw this equilibrium situation on a graph. Use the multiplier to determine the change in equilibrium GDP that would result from an exogenous 16 billion dollar increase of government purchases. Then determine…arrow_forwardWhat is the minimum value of multiplier?arrow_forwardCritically examine the doctrine of the Multiplier.arrow_forward
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