Consider an economy in which all taxes are autonomous and the following values of autonomous consumption, planned investment, government expenditure, autonomous taxes, and the marginal propensity to consume are given: Ca = 1,400; Ip = 1,800; G = 1,950; Ta = 1,750; c = 0.6 a. What is the level of consumption when the level of income (Y) equals $10,000? b.What is the level of saving when the level of income (Y) equals $10,000? c. What is the level of planned investment when the level of income (Y) equals $10,000? What is the level of actual investment? What is the level of unintended inventory investment? d. Show that injections equal leakages when income (Y) equals $10,000. e.Is the economy in equilibrium when income (Y) = $10,000? If not, what is the equilibrium level of income for the economy described in this question?

Consider an economy in which all taxes are autonomous and the following values of autonomous consumption, planned investment, government expenditure, autonomous taxes, and the marginal propensity to consume are given: Ca = 1,400; Ip = 1,800; G = 1,950; Ta = 1,750; c = 0.6 a. What is the level of consumption when the level of income (Y) equals $10,000? b.What is the level of saving when the level of income (Y) equals $10,000? c. What is the level of planned investment when the level of income (Y) equals $10,000? What is the level of actual investment? What is the level of unintended inventory investment? d. Show that injections equal leakages when income (Y) equals $10,000. e.Is the economy in equilibrium when income (Y) = $10,000? If not, what is the equilibrium level of income for the economy described in this question?

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 4TY

See similar textbooks

Similar questions

a. Suppose the government increases both taxes (7) and government purchases (G) by equal amounts. Assuming income (Y) is fixed by the factors of production, the change in national saving (AS) will be (MPC-1) * AT. (1-MPC) x AT. b. The larger is the MPC (the closer it is to 1), the will be the increase in the interest rate. will be the decline in investment, and the
6. You are given the following consumption function : C = RM150 million + 0.75Yd Based on the above consumption function, answer the following questions: a. Determine the saving function How much is : b. 1. Autonomous consumption II. Autonomous saving C. How much is the disposable income when saving is zero? d. If there an investment of RM200 million, what will be the new equilibrium level of income. e. If G = 100, calculate the new equilibrium level if government expenditure increased from RM100 to RM150 f. If I = 100, calculate the new equilibrium level if investment decrease to RM50
1. Suppose the households in a hypothetical economy has the following consumption function C= a + cYd. Where is the disposable income. The government in this economy imposes a tax rate of to households’ income (ex. A means that 10% of households’ income goes to tax payments). a. What is the equation that describes the disposable income of households? b. What is the Planned Expenditure Equation? Assume that government expenditure is exogenous and Investment function is given by the equation I = I-br Where is the interest rate. c. Derive the equilibrium output in the goods market and show that the multiplier in this model is 1/1c(1-t). d. How does and the tax rate affects this multiplier (e.g., what happens to multiplier if c increases cet.par. , or if tax rate increases, cet.par)?
Assume that a nation's marginal propensity to consume (MPC) is 0.75. A highiy productive, cost-cutting technology is developed for the production of commercial airplanes. The total industry expenditure in this nation is $100 million for the immediate acquisition and adoption of this technology. (a) For this nation, identify and explain how much this spending on new technology will change each of the following in the first round: i. Income (GDP) L. Saving i. Consumption (b) Assuming a closed economy and no leakages, identify and explain how much this spending on new technology will change each of the following at the end of the final round: i. Income (GDP) ii. Saving li. Consumption
4.5 You are given the following data concerning Freedonia, a legendary country: (1) Consumption function: C = 200 + 0.8Y (2) Investment function: I = 100 (3) AE = C + I (4) AE = Y a. What is the marginal propensity to consume in Freedonia, and what is the marginal propensity to save? b. Graph equations (3) and (4) and solve for equilibrium income. c. Suppose equation (2) is changed to (2´) I = 110. What is the new equilibrium level of income? By how much does the $10 increase in planned investment change equilib- rium income? What is the value of the multiplier? d. Calculate the saving function for Freedonia. Plot this sav- ing function on a graph with equation (2). Explain why the equilibrium income in this graph must be the same as in part b.
4. In the economy of St. Maynard Island, autonomous consumption expenditure is $185 million, and the marginal propensity to consume is 0.75. Investment is $150 million, government expenditure is $100 million, and net taxes are $80 million. Investment, government expenditure, and taxes are constant - they do not vary with income. The island does not trade with the rest of the world. a) What is the consumption function?
Find the equilibrium level of GDP (income or V) demanded in an economy in which investment (1) is always $300, net exports (X-IM) are always - 550, government expenditures (G) and taxes (T) are each equal to $400, and the consumption function is described by the following algebraic equation: C = 150 + 0.75Dl DI is disposable income. How much saving (5) is there at the equilibrium level of income. Hint: (1) Dl = Y (national income or GDP) minus taxes (Y-T) (2) Income (Y) not consumed (C) must be saved (S). This means that S = Y-C. (3) to answer this you have to set Y=AE or Y=C+1+G (X-IM), and solve for Y. Then you have to solve for S.
14. Find the equilibrium level of GDP in an economy in which investment is always 200 and the consumption function is C = 120 + 0.6Y. 7000 800 700 8000
3. If the consumption function is C= $200 billion + 0.9Y, a) How much do consumers spend with income of $3 trillion? b) How much do they save?
QUESTION 12 A country is closed. It has no government sector, and its aggregate price levels and interest rates are fixed. Furthermore, the marginal propensity to consume is constant and the country's consumption function is as follows: C = 200 + 0.75 YD, where YD is disposable income and C is consumption. Assume that planned investment equals 75. What is the income–expenditure equilibrium for this country? a. $1,100 b. $900 c. $200 d. $275 QUESTION 13 A reduction in the value of a currency that is determined under a floating exchange rate regime is a(n): a. devaluation. b. appreciation. c. revaluation. d. depreciation.
Explain what happens to consumption, investment, and the interest rate when the government increases taxes. Show graphically the effect of increased taxes when saving is not dependent on interest rate.
In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, and national saving? Explain with equations.