An economy is currently in equilibrium. The following figures refer to elements in its national income accounts.
Question:
An economy is currently in equilibrium. The following figures refer to elements in its national income accounts.
£ billions | |
Consumption (total) | 60 |
Investment | 5 |
Government expenditure | 8 |
Imports | 10 |
Exports | 7 |
(a) What is the current equilibrium level of national income?
(b) What is the level of injections?
(c) What is the level of withdrawals?
(d) Assuming that tax revenues are £7 billion, how much is the level of saving?
(e) If national income now rose to £80 billion and, as a result, the consumption of domestically produced goods rose to £58 billion, what is the mpcd?
(f) What is the value of the multiplier?
(g) Given an initial level of national income of £80 billion, now assume that spending on exports rises by £4 billion, spending on investment rises by £1 billion, whilst government expenditure falls by £2 billion. By how much will national income change?
(h) Given this new level of national income, assume that full employment is achieved at a national income of £100. Is there an inflationary or a deflationary gap?
(i) What is the size of this gap?
Step by Step Answer: