Assume that GDP (Y ) is 5,000 in a closed economy. Consumption (C) is given by the equation C = 1,200 + 0.6(Y −T)−100r, where r is the real interest rate, in percent. Investment (I) is given
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Assume that
C = 1,200 + 0.6(Y −T)−100r, where r is the real interest rate, in percent. Investment (I) is given
by 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,
(c) For the given consumption function, what does the relationship between consumption and the
interest rate imply about the saving schedule?
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- Q.2) Assume that GDP (Y) is 6,000. Consumption (C). is given by the equation C = 600 + 0.6(Y – T). Investment (I) is given by the equation I= 2,000 – 100r, where r is the real rate of interest in percent. Taxes (T) are 500 and government spending (G) is also 500. What are the equilibrium values of C, I, and r? la. b. What are the values of private saving, public saving, and national saving?(a) 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 e)] (b) In a self-regulating economy “X”, labor supply is 40 million but labor demand is 10 million. What will happen in goods and service market simultaneously? Explain this situation with relevant graph. Based on your findings in a) is it denoting long run equilibrium? If not, will the economy be able to restore…The consumption function for a closed economy with no government sector is given by the equation: C = £200 million + 0.8 Y where C is aggregate consumption and Y is national income. (i) Calculate the value of aggregate savings if the level of national income is £4000 million. (ii) Calculate the equilibrium level of national income if the level of planned investment is £600 million. (ii) Calculate the level of aggregate consumption at the equilibrium level of national income if the level of planned investment is £1000 million. Calculate the change in national income if planned investment rose from £600 (iv) million to £800 million.
- Find the equilibrium level of GDP (income or V) demanded in an economy in which investment (1) is always $300, net exports (X-IM) are always - 550, government expenditures (G) and taxes (T) are each equal to $400, and the consumption function is described by the following algebraic equation: C = 150 + 0.75Dl DI is disposable income. How much saving (5) is there at the equilibrium level of income. Hint: (1) Dl = Y (national income or GDP) minus taxes (Y-T) (2) Income (Y) not consumed (C) must be saved (S). This means that S = Y-C. (3) to answer this you have to set Y=AE or Y=C+1+G (X-IM), and solve for Y. Then you have to solve for S.Assume a closed economy where the level of I is 300, G=T=150 and the savings function is S= −30 + 0.15Yd Where S is savings, I is investment, G is government expenditure, T is taxes and Yd is disposable income. i) Calculate the equilibrium level of income. ii) What will be the increase in national income if investment reduces by 25 holding other variables constant? iii) Suppose government reduced taxes by 100 in this economy, what would be the change in national income? Iv) illustrate (iii) above using a well labelled diagram of the Keynesian cross. The following data relate to an emerging African country.Item Value('000) KSHSGNP 8,000,000 Depreciation 100,000Indirect Business Taxes 80,000Gross Investment…Equilibrium output is 1000, MPC is 1/2 and taxes are zero. Government spending is 20 and net exports are 0. Compute r if I(r) = 100/r. %3D (a) r= 19% (b) r= 51% (c) r= 21% (d) r = 18%
- Assume that GDP (Y) = 5,000 Consumption: C = 1,300+(0.4(Y-T)) - 240 r; where r is the real interest rate. Investment (1) is: /= 1,800 - 240 r, Taxes (7): T=250 Government spending (G): G= 1,800 a. What are the equilibrium values of C, Number I, Number and r Number b. What are the values of private saving Number public saving, Number and national saving NumberSuppose 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 upIn 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.
- Consumption function: C = 85 + 0,5Yd Investment function: I = 75 Government spending: G = 70 Net Taxes: T = 0,25Y Disposable income: Yd Y – T Equilibrium: Y = C + I + G You are given the following model for the economy of a country without a foreign sector: (d) Solve for equilibrium income. (Hint: Be very careful in your calculations. They are not difficult, but it is easy to make careless mistakes that produce dramatically wrong results.) (e) How much does the government collect in taxes when the economy is in equilibrium? (f) What is the government’s budget deficit or surplus?The consumption function for a closed economy with no government sector is given by the equation: C = £200 million + 0.8 Y where C is aggregate consumption and Y is national income. (i) Calculate the value of aggregate savings if the level of national income is £4000 million. Show all your workings. (ii) Calculate the equilibrium level of national income if the level of planned investment is £600 million. Show all your workings. (iii) Calculate the level of aggregate consumption at the equilibrium level of national income if the level of planned investment is £1000 million. Show all your workings. (iv) Calculate the change in national income if planned investment rose from £600 million to £800 million. Show all your workings.(a) Assume that Gross Domestic Product (GDP)/Total output (Y) is 6,000. Consumption (C) is given by the equation C = 600 + 0.6(Y – T) where T is the tax. Investment (I) is given by the equation I = 2,000 – 100r, where r is the real rate of interest, in percent. Taxes (T) are 500, and government spending (G) is also 500. What are the equilibrium values of C, I, and r?