A if g 26000 what is w b if g 26000 what is y c if g rises...

a) If G = 26,000, what is w? b) If G = 26,000, what is Y? c) If G rises to 26,400, what is Y? d) What is the government spending multiplier when G increases to 26,400 from 26,000? Suppose the economy's production function is Y = A(300N - N^2) and MPN = A(300-2N). Suppose that A = 10. The supply of labor is NS = 0.05w + 0.005G.

Transcript

00:01 Suppose that the consumption function is given by c is equal to 250 plus 0 .7yd and g is equal to 220.

00:11 T is equal to 200 plus 0 .1yi is equal to 500.

00:19 Write consumption as a function of income y.

00:22 Find the output and consumption in equilibrium.

00:25 By how much will y increase if g increases by 100? by how much will y increase if i increases by 100? write the budget balance as a function of y.

00:37 So for the first question, we have the consumption function, the tax function and the investment function, investment and government expenditure.

00:48 And we have to find the consumption as a function of income, the expenditure multiplier or the investment multiplier.

00:55 So the given consumption is a function of, to write the consumption as a function of income, the consumption is a function of disposable income.

01:05 We have to exchange it into a function of income.

01:08 So we know that c is equal to 250 plus 0 .7 y minus t since yd is equal to y minus t.

01:20 So c will be equal to 250 plus 0 .7 open brackets y minus 200 will replace t with 200 plus y which if you open up this will be 200 minus 0 .1 y.

01:37 So c will be 250 plus 0 .7 y minus 140 minus 0 .07 y.

01:45 So c will be 110 plus 0 .63 y.

01:51 For the second question, find out the output and consumption equilibrium.

01:56 So in equilibrium y is equal to c plus i plus g.

02:03 So y is equal to 110 plus 0 .63 y plus 220 plus 500.

02:12 So y is equal to 860 plus 0 .63 y and y minus 0 that is y minus 0, 63 y is equal to 860.

02:27 So 0 .37 y is equal to 830 and y would be equals 830 divided by 0 .37 which is 2243...