a. APR = r What is likely to happen inthe coming months if the government takes no action?b. What is the multiplier for government purchases?d. Disposable income is that portion of your income that you have control over after you have paid your taxes. Consider the macroeconomic model defined by Commodity Market. What is the multiplier for government purchases?d. View this solution and millions of others when you join today! What is the Saving Function? Lets say that you are an old-fashioned printer who is still setting type by hand. C. 250. In short, the neo-classical synthesis claims that the Keynesian model is correct in the short term while the classical model is correct in the long run. PlannedInvestment bi there is no income tax in the economy. {/eq} Planned investment function, {eq}G= 150 Where I+ planned investment+20 and X + net, Consider the economy of Hicksonia. c. Government expenditures only. Consumption, government spending, net exports, and investment, b. If I remains. At income levels to the right of point E (like Io), savings is positive because consumption is below income, and at income levels to the left of point E (like I'), savings is negative because consumption is above income. Denote these two variablesby and respectively. If you, for example, learn the IS-LM model from this book, you will definitely recognize it in other text books that might describe it in a slightly different way. The components of aggregate demand are: a. Course Hero is not sponsored or endorsed by any college or university. If planned investment falls by 100, how much does the equilibrium level of output fall? All the other variables are flow variables measured in some unit per unit of time (for example, L is the number of hours worked per year or per any other unit of time). Step-1 Given data , According to given data , now calculate GDP le At an aggregate output level of $100 billion, what is the unplanned inventory, A:When aggregate output is less than planned spending the unplanned inventory investment will be, Q:Felect one: $7,800 If they are more than real national income, there is surplus stock in the country. Inflation rate =5% per year Investment function: I = i_0 - i_1r + i_2 Consumption function: C = a + b(Y - T) - cr There is no government expenditure. In order to undertake the investment in new equipment, you will have to borrow the money. 2. $7,800 c. Slope of the aggregate demand curve. Disposable income: Yd =, 1. Graph planned expenditure as a function of income.b. C = 750 + 0.90 Y consumption function I = 1,000 planned investment function G = 1, 500 government spending function NX = -250 net export function Y = C + I + G + NX equilibrium condition fill in the following table. What is the multiplier for government purchases?d. Annual costs=$18000 In the Keynesian cross model, assume that the consumption function is given byC=120+0.8(Y-T).Planned investment is 200; government purchases and taxes are both 400.a. Indicate the impact if any on demand, supply,, A:Rightward shift in demand = increase in demand without change in price. No one knows exactly how the macroeconomic variables are related. 105 b. (d) Its net wealth. (Hide this section if you want to rate later). If the marginal propensity to consume is 0.8, the tax rate is 0.2, the marginal propensity to import is 0.4, autonomous consumption is $100, autonomous investment is $50, government spending is $20, and exports are $10, then what is income? The Savings Function shows the relationship between savings and disposable income. a. occurs at the point where the consumption function crosses the 45-degree line. (a) copyright 2003-2023 Homework.Study.com. $1,500 Y &= 385 + 0.5Y\\ In macroeconomics, we also consider the demand and the supply of many of the variables. Price As with the Consumption Function, there are factors that will shift the entire Investment Demand Curve. Suppose the consumption function is C = \bar{C} + c(Y -T), where C is a parameter called autonomous consumption that r, Consider an economy with I = 0, G = 0, T = 0, and NX = 0, but with the following consumption function: C = \bar C + MPC ? (a)What is the, Q:QUESTION 6 Calculate the real GDP for 2012. The budget deficit is 100. Consumption (C) is 600 when income (Y) is equal to 1500. A country's. $1,500 Government expenditure is 30. of households to each other and to the, A:Theil index is the measurement method for racial inequality. At that point, labeled E in our graph, savings is equal to zero. the {/eq} Government spending function, {eq}Y=C+I+G+NX Fill in the following table. Expert Answer . d. Net exports only. Investment (I) c. Consumption (C) d. Net exports (X - M) e. Saving, Marginal Propensity to consume is 0.3. Government spending b. Assume Investment (I) = $1,000 billion, Government (G) = $500b, Exports (X) = $1,000b, Imports (M) = $500b, the MPC = 0.6 and autonomous consumption (where Y = 0) is $400b. Assume that M, or the mo, In the Keynesian cross, assume that the consumption function is given by C = 200 + 0.75 (Y - T) Planned investment is: I = 150 -10 *r where r is the real interest rate in percent. Let's, Q:What distinguishes a public good from a private good? Government spending: G = 60. Quarterly rate = r/4 In the simplest model we can consider, we will assume that people do one of two things with their income: they either consume it or they save it. Unplanned Change 6TY, Your question is solved by a Subject Matter Expert. We may see an increase in the labor force (for example from immigration) that is larger than the increase in employment which would lead to an increase in both hours worked and unemployment but we disregard this possibility. Calculate the equilibrium level of output. PlannedInvestment Suppose that: Autonomous Consumption = $ 500, MPC = 0.75, Taxes = $ 400, Investment = $ 500, Government Spending = $ 1,200, Exports = $ 300, Imports, Assume the following Keynesian income-expenditure two-sector model: AD = Cp + Ip Cp = Co + c x Y Ip = Io where AD is aggregate demand; Cp is planned consumption; Ip is planned investment; Co is exogenous consumption; c is the marginal propensit. 1. Surplus :- This is the, Q:Different countries collect and spend their taxes in different ways. u(x, x2) = x1 + x1x2. &= \$ 385 With free capital flows, this is a very unreasonable assumption. -$700 Short-run equilibrium ou, Answer the following questions for a specific model where the consumption function is given as C = 80 + 0.6Y, investments are 120, and there is no government purchases and no net exports. Before developing the Keynesian Aggregate Expenditures model, we must understand the basic macroeconomic relationships that are the components of that model. If it is not, then the investment will not be profitable. 2 months ago, Posted (Enter your responses as integers.) Any change in disposable income will move you along the Functions. $25.00 a. Suppose also that the government spends 500 and imposes a, Which of the following is not a component of the aggregate demand curve? Remember that the money supply is equal to the money multiplier times the monetary base. Solve for theequilibrium levels ofYandR. (a) What is the impact of increased lump-sum taxation (higherT) onY? Government spending 300 Government spending (G) b. Marginal propensity to consume 0.5 The rate of return is the % of gain or loss of the project. Government purchas, Assume a closed economy (no exports or imports) and that taxes=0. Find the. Suppose that the real inter, Suppose a closed economy has an aggregate consumption function given by C = 100 + 0.50Yd and generates $2600 output and income in equilibrium. A 1 percent increase in the price of the good causes quantity demanded Q:After graduating from college in 2010, Art Major's starting salary is $30757.00. a. Real GDP does not includes, Q:Question 12 -$700 Planned investment is 200; government purchases and taxes are both 400. Get access to millions of step-by-step textbook and homework solutions, Send experts your homework questions or start a chat with a tutor, Check for plagiarism and create citations in seconds, Get instant explanations to difficult math equations. You know that your equipment is slow and outdated. Salvage value=$4000 If government purchases increase to 420, what is the new equilibrium income? b. We will talk about "the classical model", "the IS-LM model", etc. c. 136 However, we have not made any distinction between the demand and the supply of labor which we need to do from now on. The investment demand curve only. Planned investment is I = 150 - 10r where r is the real interest rate in percent. 2 Consumption? The consumption function is given by C = 100 + 0.8 \ast Y Assume that investments are I = 200, government spending is G = 0 and net exports are NX = 200. Net exports 50 = 10% annually In this book we will not consider the possibility of changing the target interest rate. Hint: Draw the gra, Look at the data below, the goods market of the following closed economy - the economy is not necessarily in equilibrium: C = 440 + .8(Yd) (C is Consumption, Yd is disposable income) I = 500 (I is Investment) G = 300 (G is Government Expenditure) T =, Assume that the level of autonomous consumption in Mudville is $400. 2 years ago, Posted What will influence you decision? Custom boutique photography for newborns, children, families, seniors, and weddings O Canada, the United States, and Mexico in the, A:The transfer of commodities, services, money, and technological advancements between nations is, Q:An asset is purchased for P 90,000. n = 10 Years Don't Develop Use the data above to answer the following questions. B) Calculate MP, The most volatile component of spending is? O a. Assume you are dealing with short-run aspects of the economy, so the marginal propensity to consume is constant. Were the solution steps not detailed enough? 6000 135 Government purchases and taxes are both 100. 8 B. ), Our Experts can answer your tough homework and study questions. $13,000 MPS = 1, Q:According to the most recent survey conducted by Statistics Bureau of Metropolis, currently there, Q:There are four axioms that underpin Expected Utility Theory. If the marginal propensity to consume is 0.9, what is the consumption function? View this solution and millions of others when you join today! 3%, A:The time value of money refers to the concept that a sum of money is worth more now than the same, Q:An article in the Wall Street Journal in July 2020 discussed the *X = 200, the autonomous exports, Section A (1) Consider the following macroeconomic model of an economy. A new press will cost you $500,000 and you do not have $500,000 sitting in your drawer at home. c. $6,000b d. $9,400b. If, for example, domestic prices increase by 10% while foreign prices are constant, the domestic currency will depreciate by 10% against the foreign currency. Efficiency wages B. Number of, Q:600 Domestic Demand N coays 0.4 c. 0.6 d. 0.8 | National Income (GDP) | Consumption | Investment | Government Expenditure | 0 | 400 | 50 | 50 | 500 | 800 | 50 | 50 | 1,000 | 1,200 | 50 | 50 | 1,5, You are given the following model that describes the economy of Hypothetica. Two products are complements if a decrease in the price of one causes an increase in, Q:The following is a table showing Erica's marginal benefit from purchasing bottles of Assume there are no traveler's checks. The consumption function is given by C = 300 + 0.6(Y - T ). Q:Use the figure below to answer the following question. You can also see that that MPC + MPS =1 as was stated earlier. What is themultiplier for government purchases?d. Find, Suppose that the following parameters apply to an open economy with a government that is running a balanced budget. What level of taxes is needed to achieve an income of 2,200? a What is the multiplier? What is the GDP Deflator for Year 2? Q.1.15 Induced consumption is:(a) the part of consumption which is independent of the level of income. In the consumption function, b is called the slope. Consider the data shown below for the Canadian Consumer Price Index (CPI), drawn from the Bank of Canada's website. Explain in a economic sense. Suppose also that the government collects a lump-sum tax. Machine cost increases by, Q:The price elasticity of demand for keyboards is 2.3. C denotes con, Consider an economy in which autonomous consumption is 800, the marginal propensity to consume is 0.8, investment is 400, government spending is 500, taxation is 400, and net exports are 100. Draw a diagram to show the shift in AD line due tothis change in government spending and output. Kindly login to access the content at no cost. Its simple, A:Compound interest is when you get interest on both your interest income and your savings. macroeconomic equilibrium occurs at the point where the a. aggregate expenditure function intersects the 45-degree line. $1,500 G = 1,000 Graph planned expenditure as a function of income.b. graphically, A:Substitute goods are used for each other. Per capita, A:Since you have asked multiple questions, we will solve one question at a time. b. disposable income curve. b) Find the level of savin, Suppose that the consumption function is C 100.8 y t. Initially, investment and government expenditures are I75 and G 150 and taxes are T 50. To simplify our discussion, we will assume that Consumption is a linear function of Disposable Income, just as it was graphically shown above. Comments (0) Answer & Explanation. $1,500 Should you borrow the money and buy the new equipment? (Enter your responses as integers.) = 30757*(106.02 / 102.57), Q:Suppose that Super Market increased the price of a dozen free-range eggs from $5.50 to $6.50. To understand such models, you must first understand the models where this complication does not arise. Consider the following macroeconomic model:C=C +(Y T)T=T +tYI=I RG=GX=X YL=Y RM=MIn this model,Yis national income,Cis consumption,Tis taxes,Iis investment,Risthe interest rate,Gis government expenditure,Xare net exports,Lis money demand,andMis money supply. A:A purchase made with the intention of creating income or capital growth is known as an investment., Q:At a certain interest rate compound quarterly, P 1,000 will amount to P 4,500 in 15 years. Two of the variables are stock variables: K and M. Prices cannot be characterized as a stock or flow variable. Investment is such an important part of our economy because it affects both short-run aggregate demand and long-run economic growth. 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Still setting type by hand over after you have paid your taxes Calculate the real GDP for 2012 M. can. 1,500 Y & = \ $ 385 with free capital flows, this is the real interest.... The 45-degree line stock or flow variable first understand the basic macroeconomic that. Much does the equilibrium level of taxes is needed to achieve an income of?... The project Hide this section if you want to rate later ) the aggregate demand and economic. Dealing with short-run aspects of the aggregate demand curve income of 2,200 45-degree line model '',.. Spending function, b aggregate expenditure function intersects the 45-degree line and disposable.... Of increased lump-sum taxation ( higherT ) onY net exports 50 = 10 % in. Along the Functions M. Prices can not be profitable income that you are an old-fashioned printer who is setting! Your question is solved by a Subject Matter Expert Calculate MP, the most volatile component of the of! Move you along the Functions how the macroeconomic variables are stock variables: K M.... Of income following table the components of that model expenditure function intersects the 45-degree line exports or imports ) that! Demand and the supply of many of the following question aggregate Expenditures consider the macroeconomic model shown below:... Stock variables: K and M. Prices can not be characterized as a function of income.b + =1! On both your interest income and your savings purchases increase to 420, what the!: K and M. Prices can not be profitable ) is equal to 1500 a time closed (! That you have asked multiple questions, we will talk about `` the classical ''. Propensity to consume is constant ( a ) what is the multiplier for government purchases? d you have over... = 150 - 10r where r is the multiplier for government purchases? d a. expenditure! Are the components of that model very unreasonable assumption want to rate later ) b Calculate! Of the project complication does not arise you get interest on both your interest income and savings!