Do all parts to the question (show your work) Assume in Macroland, MPC = 0.8, and autonomous consumption = $2000. Planned investment = $5000, and planned government purchases = $4000. All planned expenditure are autonomous expenditures. Taxes ( T) is = zero and net exports = zero. a. Write out the consumption function b. What is induced consumption in this model? c. Write out the planned expenditure function (show your work) d. Calculate equilibrium real current GDP (income) (show your work) e. How much is the expenditure multiplier? f. If at the current level of equilibrium, the economy is experiencing an inflationary gap $2000. How much is the full employment GDP?

Do all parts to the question (show your work) Assume in Macroland, MPC = 0.8, and autonomous consumption = $2000. Planned investment = $5000, and planned government purchases = $4000. All planned expenditure are autonomous expenditures. Taxes ( T) is = zero and net exports = zero. a. Write out the consumption function b. What is induced consumption in this model? c. Write out the planned expenditure function (show your work) d. Calculate equilibrium real current GDP (income) (show your work) e. How much is the expenditure multiplier? f. If at the current level of equilibrium, the economy is experiencing an inflationary gap $2000. How much is the full employment GDP?

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter9: Aggregate Demand

Section: Chapter Questions

Problem 1.1P

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1. Interpret what it means if MPC equals 0.95? 2. If your MPC is 0.9 and your income falls by $200, what will be your change in spending? 3. For each of the following determine whether there is movement along a consumption schedule (function), or a shift of the schedule. If there is a shift then indicate the direction of the shift and interpret that shift. a. Consumer’s expectations became more optimistic. b. An increase in the interest rate. c. There is a current low level of consumer durables on hand. d. Consumer incomes rise.
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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)?
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1.In Figure 1, when disposable income is 0, how much is consumption, saving, autonomous consumption, and induced consumption? 2.In Figure 1, when disposable income is 2500, how much is consumption, saving, autonomous consumption, and induced consumption? 3.In Figure 1, when disposable income is 4,000, how much is the consumption, savings, autonomous consumption and induced consumption?
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