Y = C + I + G C = α0 + α1(Y - T) α0 = 20 α1 = 0.6 G = T = 15 I = 30 The above describes a simple closed economy. 1) What is the equilibrium GDP? 2) What is the marginal propensity to save out of disposable income? 3) What is the average propensity to consume out of disposable income (at equilibrium GDP)? 4) What is the value of the expenditure multiplier? 5) What happens to GDP if G rises by 10 but is simultaneously financed by an increase in taxes? 6) What are the key assumptions being made in calculating these multipliers? 7) What will be the slope of the IS curve?
Added by Hugo J.
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Substituting the given values into the equation, we get: \[ Y = 0.6Y - 9 + 65 \] \[ 0.4Y = 56 \] \[ Y = 140 \] Therefore, the equilibrium GDP is 140. Show more…
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ADVANCED ANALYSIS Assume that the consumption schedule for a private open economy is such that consumption is: C = 50 + 0.75Y. Assume further that planned investment Ig and net exports Xn are independent of the level of real GDP and constant at Ig = 30 and Xn = 10. Recall also that, in equilibrium, the real output produced (Y) is equal to aggregate expenditures: Y = C + Ig + G + Xn. Instructions: Round your answers to the nearest whole number. a. What is the equilibrium level of income or real GDP for this economy? Equilibrium GDP (Y) = $. b. What happens to equilibrium Y if Ig changes to 10? Equilibrium GDP (Y) = $. What does this outcome reveal about the size of the multiplier? Multiplier = .
Andrew D.
Consider the following planned aggregate expenditure model with proportional taxes and an open economy: planned investment, I = $5 trillion; government spending G = $3 trillion; Taxes are proportional to GDP with t=0.10 (Thus total taxes will be equal to t multiplied by Y); the consumption function, C(Y-T)= $4 trillion + 0.8((1-t)Y); EX= $4 trillion; and IM= $2 trillion +0.06Y. a. What is the equilibrium level of GDP? b. At the equilibrium level of GDP, what is total consumption in the economy? c. At the equilibrium level of GDP, what is total savings in the economy? d. What is the government spending multiplier? (Hint: Consider a $1 trillion dollar increase in GDP) e. Is there a trade deficit or a trade surplus? How large is it?
In Keynesian macroeconomic theory, total consumption expenditure on goods and services, $C$, is assumed to be a linear function of national personal income, $I .$ The table gives the values of $C$ and $I$ for 2009 and 2013 in the United States (in billions of dollars). $$\begin{array}{|c|c|c|}\hline \text { Year } & 2009 & 2013 \\\hline \text { Total consumption }(C) & \$ 10,089 & \$ 11,484 \\\hline \text { National income }(I) & \$ 12,026 & \$ 14,167 \\\hline\end{array}$$ (a) Find a formula for $C$ as a function of $I$ (b) The slope of the linear function found in part (a) is the marginal propensity to consume. What is the marginal propensity to consume for the United States from $2009-2013 ?$
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