Suppose the desired consumption function of Canadaland is given by C^d= 0.5 + 0.7Y - 10r - 0.1G, where Y is income, r is the real interest rate, and G is government purchases. This implies that
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Suppose the desired consumption function of Canadaland is given by C^d= 0.5 + 0.7Y - 10r - 0.1G, where Y is income, r is the real interest rate, and G is government purchases. This implies that
a. Desired consumption is increasing in the real interest rate
b. The marginal propensity to consume is 0.5
c. The marginal propensity to consume is 0.75
d. Desired consumption is increasing in governmental purchases
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- Saving function = S=- 500 + 0.25 Y, I = 400 - 1250 i Ms = 1200, Mt = 0.20 Y, Mp = 0.05 Y and Msp = 500 - 1300 i a) Calculate Y and i equilibrium b) If the government increase its expenditure by 100, what is the rate of national income growth and how many percent the effectiveness of this policy? c)Draw the graph completely.Consider an economy in which all taxes are autonomous and the following values of autonomous consumption, planned investment, government expenditure, autonomous taxes, and the marginal propensity to consume are given: Ca = 1,400; Ip = 1,800; G = 1,950; Ta = 1,750; c = 0.6 a. What is the level of consumption when the level of income (Y) equals $10,000? b.What is the level of saving when the level of income (Y) equals $10,000? c. What is the level of planned investment when the level of income (Y) equals $10,000? What is the level of actual investment? What is the level of unintended inventory investment? d. Show that injections equal leakages when income (Y) equals $10,000. e.Is the economy in equilibrium when income (Y) = $10,000? If not, what is the equilibrium level of income for the economy described in this question? f. Is there a surplus or deficit in the government budget at the equilibrium level of income? How much? g. Draw the consumption function and the 45° line on a graph,…Suppose in a simple Keynesian economy, planned consumption function is given by C=250+0.65(Y-T). Planned investment, government purchases, taxes are $100 million, $100 million and $150 million respectively. What is MPC, MPS and autonomous consumption Derive the saving function. What is the equilibrium level of income? Y= AD=C+I+G If government purchases increase to $150 million, what is the new equilibrium level of income? What level of government purchases is needed to achieve an income of $2000 million? From question (5) you get the newly government purchase. Now find out the multiplier value What is the amount of shift in AD curve? [Use the multiplier value from (5)] ** Need the answer of question 7 only **
- Suppose in a simple Keynesian economy, planned consumption function is given by C=250+0.65(Y-T). Planned investment, government purchases, taxes are $100 million, $100 million and $150 million respectively. What is MPC, MPS and autonomous consumption Derive the saving function. What is the equilibrium level of income? Y= AD=C+I+G If government purchases increase to $150 million, what is the new equilibrium level of income? What level of government purchases is needed to achieve an income of $2000 million? From question e) you get the newly government purchase. Now find out the multiplier value What is the amount of shift in AD curve? [Use the multiplier value from (5)]A country is closed. It has no government sector, and its aggregate price levels and interest rates are fixed. Furthermore, the marginal propensity to consume is constant and the country's consumption function is as follows: C= 200+ 0.75 YD, where YD is disposable income and Cis consumption. Assume that planned investment equals 75. If this country's income increased by $10,000, consumption would increase by: A) $10,000. B) $7,500. C) $200. D) $7,700.a. Suppose the government increases both taxes (7) and government purchases (G) by equal amounts. Assuming income (Y) is fixed by the factors of production, the change in national saving (AS) will be (MPC-1) * AT. (1-MPC) x AT. b. The larger is the MPC (the closer it is to 1), the will be the increase in the interest rate. will be the decline in investment, and the
- Q.3 Suppose that the consumption function is defined as C=a+b(1-k)Y -bT a-bT 0 and both lump-sum tax (T) and tax rate (k) are constant. This consumption function yield: where A. MPC will decrease as income increase since a-bT 0 B. MPC will increase as income increase C. APC will decrease as income increase D. APC will remain the same as income increase E. APC will increase as income increaseSuppose that planned investment and planned government purchases do not depend on income: | = 15 and G = 17. Consumption, as you would expect, does depend on income via the consumption function C = 2 + 0.75Y – 0.75T. Net taxes are T = 12. Your friend thinks that the equilibrium will be where Y = 150 but he is wrong. What is the best description of this situation? the (Y, AE) point is above the 45 degree line, Y will adjust down the (Y, AE) point is above the 45 degree line, Y will adjust up the (Y, AE) point is below the 45 degree line, Y will adjust down the (Y, AE) point is below the 45 degree line, Y will adjust upAssume taxes are zero and an economy has a consumption function of C = 0.80 (Yd) + $879.06. How much savings take place if disposable income is equal to 3,258.02? Round your answer to two digits after the decimal and include a negative sign if you find negative savings which is borrowing.
- Assume that GDP (Y ) is 5,000 in a closed economy. Consumption (C) is given by the equationC = 1,200 + 0.6(Y −T)−100r, where r is the real interest rate, in percent. Investment (I) is givenby the equation I = 2,000 − 200r. Taxes (T) are 1,000, and government spending (G) is 1,500.(a) What are the equilibrium values of C, I, and r? (b) What are the values of private saving, public saving, and national saving? (c) For the given consumption function, what does the relationship between consumption and theinterest rate imply about the saving schedule?Assume the Ghanaian economy is closed (thus where there is no export and imports) with the information below. C= 400+ 0.8Yd Where Y (Y-T) I= 150 G= 250 T= 200 a) Explain the concepts of marginal propensity to consume(MPC) and marginal propensity to save(MPS) b) What is the MPC and MPS for this economy? c) Explain the concepts of the autonomous spending and tax multipliers. d) What is the autonomous spending multiplier for this economy? e) What is the tax multiplier for this economy? f) What is the equilibrium level of income for this economy? g) Suppose that the full employment level of output for this economy is 2000. h) What sort of output gap is Ghana facing? i) Present the gap in a well labelled diagram j) What kind of policy can the government use to close this kind of gap?In a closed economy, the consumption function is C = 80 + 0.8YD − 20r, where YD is disposable income, taxes T x = 200 and transfers are T r = 100. The investment function is I = 550 − 130r. Output is Y = 1000. Here the real interest rate is measured in percentage points (e.g. for r = 5% use 5 and not 0.05). (D) The government raises its spending by 150 and finances this by borrowing. Find the new equilibrium. Does the crowding out effect takes place? If yes, describe it in detail: what crowds out what. If not, explain why. (E) Instead, the government raises its spending by the same 150 and finances this by raising taxes by an equal amount (to keep the budget balanced). Find the new equilibrium. Does the crowding out effect takes place? If yes, describe it in detail: what crowds out what. If not, explain why. (F) Draw the loanable funds market diagram. Show the initial equilibrium and the two equilibria under the two fiscal policies.
