Suppose an economy with the following characteristics. Y = Real GDP or national income T = Taxes = 0.3Y C = Consumption = 140 + 0.9(Y – T) I = Investment = 400 G = Government spending = 800 X = Exports = 600 M = Imports = 0.15Y Given the information above, What is this economy’s spending multiplier?

Suppose an economy with the following characteristics. Y = Real GDP or national income T = Taxes = 0.3Y C = Consumption = 140 + 0.9(Y – T) I = Investment = 400 G = Government spending = 800 X = Exports = 600 M = Imports = 0.15Y Given the information above, What is this economy’s spending multiplier?

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter9: Aggregate Expenditures

Section: Chapter Questions

Problem 6E

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Suppose an economy with the following characteristics.Y = Real GDP or national incomeT = Taxes = 0.3YC = Consumption = 140 + 0.9(Y – T)I = Investment = 400G = Government spending = 800X = Exports = 600M = Imports = 0.15YGiven the information above What is the equation for Aggregate Expenditures (AE) in this economy?
Use the table below to answer the following questions. Real Consumptio GDP n $300 310 320 330 340 350 360 $290 298 306 314 322 330 338 (a) What is the size of the multiplier in this economy? Now, calculate the multiplier when the MPS is .5, .25, .10. What is the relationship between MPS and the multiplier? (b) If taxes were zero, government purchases were $10, investments $6, and net exports were zero, what is the equilibrium GDP? (c) If taxes are $5, government purchases are $10, investment is $6, and net exports are zero, what is the equilibrium GDP? (d) Assume that investment, net exports, and taxes are zero. Government purchases are $30, and the full-employment GDP without inflation is $330. How much must government spending be reduced to eliminate the inflationary expenditure gap?
Use the following information on economy X to answer the questions below.Consumption function: C = 250 + 0.8YInvestment spending: I = 150Government spending: G = 500Exports of goods and services: X = 200Imports of goods and services: Z = 150Proportional tax rate: t =25%Full employment level of income = 3575Q.4.1.4 Calculate the change in government spending required to reach full employment level of income.
Aggregate Expenditures 800 600 400 200 0 15 04 Income Refer to the above graph to answer this question. What is the value of the multiplier in this economy? 200 400 600 800 1000 167 A AE 02 O Cannot be determined.
C = 450 + 0.4YI = 350G = 150X = 70Z = 35 + 0.1YT = 0.15YYf = 1550(Hint: use the multiplier method)Q.2.4 Calculate the tax revenue to the government of this country when the economyremains in equilibrium.Q.2.5 Calculate what the new equilibrium income should be if the government of thiscountry decides to cancel all taxes, implying the tax rate would now be 0%.Q.2.6 Before the government decreased the tax rate, how much of governmentspending was required to bring the economy to full employment?
What is the difference between tax cuts imposed on higher-income households compared with lower- and middle-income households? Discuss the implications for the multiplier and the effectiveness of the tax cuts for boosting GDP.
Use the following information on economy X to answer the questions below.Consumption function: C = 250 + 0.8Y Investment spending: I = 150 Government spending: G = 500 Exports of goods and services: X = 200 Imports of goods and services: Z = 150 Proportional tax rate: t =25%Full employment level of income = 3575 1. Calculate the equilibrium income for the economy. 2. Calculate the change in government spending required to reach (3) full employment level of income.
Briefly discuss the following concepts iv. Government expenditure multiplierv. Potential output
Suppose an economy is described by the following equations: Y = C + I + G + X – M C = 14 + 0.60Yd I = 20 G = 20 X = 15 M = 5 +0.1Y T = 20 + 0.4Y Where Y is domestic income Yd is private disposable income C is aggregate consumption spending T is government tax revenue I is investment spending G is government spending E represents exports M represents imports of goods and services. With a help of a diagram explain and discuss life cycle hypothesis.
THE AGGREGATE EXPENDITURE MODEL (IN THE SHORT RUN)YOU MUST SHOW YOUR CALCULATIONS IN THE SPACE BELOWFOR THE NEXT PROBLEM USE THE FOLLOWING FORMULA:CHANGE IN GDP = [ 1 / (1-MPC) ] * CHANGE IN GInitially, the economy is producing $13 trillion in goods and services and the government is spending $2 trillion.Then the government decides to increase its spending to $2.7 trillion. What is the value of the spending multiplier?
Using the table below, answer the following question: Real GDP ConsumptionPlanned (Y) GovernmentNet Aggregate of Investment purchases Exports (G) (C) Expenditure (AE) (1) (NX) 650 85 195 90 320 690 750 145 195 90 320 750 850 205 195 90 320 810 950 265 195 90 320 870 Find the value of the multiplier in this economy? Show your calculations. Answer: Give your reasons A- в I Fr of II
Consider an economy of a nation that has the following aggregate expenditure. 1300- 1040- 780- 520- AE 260 Y = AE 260 390 520 650 780 9ło 1040 1170 1300 130 Real GDP Note: Please make sure your final answers are accurate to 2 decimal places. a) What is the value of the equilibrium national real GDP? Equilibrium = $0 b) What is the value of the multiplier? Multiplier = 0 c) If the autonomous consumption were to decrease by $520, what would be the new value of equilibrium real GDP? New equilibrium = S0 Aggregate expenditures