n the Keynesian Cross Model, the planned expenditure equation is given as: PE = MPC(Y-T) + I + G = 100 + 0.8(Y-T). The actual expenditure equation AE = Y. Investment T = 40; government spending G = 20 A-7 Medium) 24. Refer to the information given above, what is equilibrium level of income? (Hint: starting from AE = PE) O a. 888.88 ОБ. 340 Oc. 560 O d. 1,000 A-8 Medium) 25. Refer to information given above, what is the multiplier of government spending? О а. 10 O b. 1.25 Ос. 5 O d. 2.5

n the Keynesian Cross Model, the planned expenditure equation is given as: PE = MPC(Y-T) + I + G = 100 + 0.8(Y-T). The actual expenditure equation AE = Y. Investment T = 40; government spending G = 20 A-7 Medium) 24. Refer to the information given above, what is equilibrium level of income? (Hint: starting from AE = PE) O a. 888.88 ОБ. 340 Oc. 560 O d. 1,000 A-8 Medium) 25. Refer to information given above, what is the multiplier of government spending? О а. 10 O b. 1.25 Ос. 5 O d. 2.5

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 11E

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stlon 16 Troll Island is a small island nation that recently experienced an autonomous change in aggregate expenditures (AE). AE increased by 2 billion, and the marginal propensity to consume on Troll Island is equal to 0.6. What is the change in Troll Island's real GDP after the increase in AE? Enter your answer in billions of dollars, rounded to one place after the decimal. For example, an answer of $2,500,000 should be entered as 2.5. %24 billion
Ts assume that in the model of national economy household consumption is C = 300 + 0.9*DI, companies' gross vestment is Ig = 200, but government expenses are G = 250, while the sum of taxes collected by the government iS -150. Taking into account that disposable income DI =Y-T, calculate: a) Equilibrium level of income Y; b) Calculate the value of Marginal propensity to consume and value of Marginal propensity to save; c) Private consumption at macroeconomic equilibrium%3; d) Develop equation of saving and calculate amount of saving at the point of equilibrium level of income.
option C is incorrect Use the Keynesian cross model to predict the impact of an increase in government purchases on equilibrium GDP. State the direction of the change and give a formula for the size of the impact. O An increase in taxes shifts the planned expenditure function downward. The change in income is given by AY= AY=. O An increase in taxes shifts the planned expenditure function upward. The change in income is given by -MPC 1-MPC ΔΥ= -MPC 1-MPC AY= O An increase in taxes shifts the planned expenditure function inward. The change in income is given by XAT 1 1-MPC XAT 1 1-MPC O The direction of the shift is undetermined without knowing the slope of the PE function. The change in income is given by XAT XAT
The Life-Cycle/Permanent Income Model of Consumption makes a different prediction from the Keynesian Model, about how Consumption reacts to an increase in current income. Which of the following is the best description of the difference? O In the Keynesian Model, consumers will increasktheir spending by the mpc times the increase in income. In the Life-Cycle/Permanent Income Model, consumers will not increase their spending by much unless they believe that the increase in their income is permanent. O In the Life-Cycle/Permanent Income Model, consumers will increase their spending by the mpc times the increase in income. In the Keynesian Model, consumers will only increase their spending if they believe that the increase in their income is temporary. O In the Keynesian Model, consumers will increase their spending by the mpc times the increase in income. In the Life-Cycle/Permanent Income Model, consumers will only increase their spending if they believe that the increase in their income…
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The slope of the PE (planned expenditure) line is always 45 degrees the inverse of the spending (government purchases) multiplier O negative, since as the real interest rises, economic investment falls O MPC
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