Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

3- Suppose that the government is running a balanced budget and the value of purchases made by the government is 200. The consumption function is

 
3- Suppose that the government is running a balanced budget and the value of purchases made by the government is 200. The consumption function is C = 200 + 0.6 Yd and planned investment is 100.
 
b) If the level of aggregate output is 1250, calculate:
 
- Disposal income
 
- Aggregate consumption
 
- Aggregate Saving
 
- Planned aggregate expenditure
 
- Unplanned inventory change
 
Y = C + S + T
 
Yd = Y – T
 
Yd = C + S
 
AE = C + I + G
 
Unplanned change in inventory: Y – (C + I + G)
 
4- Knowing that Y = C + S + T and AE = C + I + G, show that in equilibrium the sum of savings and taxes is equal to the sum of planned investment and government purchases.
 
5- Suppose a consumption function of an economy is C = 500 + 0.8 Yd ,
 
a) Calculate the government spending multiplier.
 
b) Calculate the tax multiplier.
 
c) Calculate the balanced-budget multiplier.
 
d) If the government increases it purchases for 200, how much the equilibrium outcome will change?
 
e) If the government decreases taxes for 200, how much the equilibrium outcome will change?
 
f) If the government increases it purchases for 200 and keep the budget balanced, how much the equilibrium outcome will change?

Step by Step Solution

3.53 Rating (156 Votes )

There are 3 Steps involved in it

Step: 1

To solve the given problems lets follow the steps one by one 3 Given Government purchases G 200 Consumption function C 200 06Yd Planned investment I 1... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Macroeconomics

Authors: Andrew B. Abel, Ben S. Bernanke, Dean Croushore, Ronald D. Kneebone

6th Canadian Edition

321675606, 978-0321675606

More Books

Students also viewed these Economics questions