Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Could you please provide the solution to this question? Please draw graphs or tables etc if needed to answer the question and show working out
Could you please provide the solution to this question?
Please draw graphs or tables etc if needed to answer the question and show working out when doing calculations.
Thank you!
Consider an economy in which autonomous consumption is 400, investment is 150, government spending is 90, exports are 45, the marginal propensity to consume is 0.55, the rate of tax on income is 5%, and the import function is M = 0.15Y where M denotes imports and Y denotes national income. (a) Calculate the economy's equilibrium level of national income. (b) Suppose the government increases its spending by 15. Calculate the economy's new equilibrium level of national income. Using your answer, and your answer for part (a), calculate the value of the multiplier. (c) Suppose after the government increases its spending, many rms announce they do not have the spare capacity to make more goods and services. Explain how this limited spare capacity will affect the multiplier process. (d) In May 2022 the UK government announced it will give each household 400 to help pay their energy bill. If such a thing happened in this economy, which component(s) of this national income model would be affectedStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started