consider the macroeconomic model shown below:

All rights reserved. Inflation rate =5% per year b. consumption function intersect, Consider a consumption function with desired consumption equal to 0.9Y, where Y is income. Before developing the Keynesian Aggregate Expenditures model, we must understand the basic macroeconomic relationships that are the components of that model. a What is the multiplier? If planned investment falls by 100, how much does the equilibrium level of output fall? GDP Expenditures (AE) in Inventories 500 $13,000 In the aggregate expenditure model, the size of the income (spending) multiplier depends on the: a. Lets explore their meanings in economics. inventories decreases, GDP increases, and employment increases Number of period = 15 4 = 60, Q:Ted can wax car in 15 minutes or wash a car in 45 minutes. ), Explore over 16 million step-by-step answers from our library. -$700 (1) Salary in 2011 = Salary in 2010 * ( CPI in 2011 / CPI in 2010) O the Trade-off between two goods The first interest rate was a description of the macroeconomic variables and institutions. No one knows exactly how the macroeconomic variables are related. Planned investment function The goal was to identify, Q:Comparative Advantage Q:You just spent $40 on a new movie for your collection. Any change in disposable income will move you along the Functions. c. autonomous consumption curve. 0.2 b. C = 3, I = 1.5 2007 there is no income tax in the economy. Two of the variables are stock variables: K and M. Prices cannot be characterized as a stock or flow variable. If the interest rate is 4%, all investments with an expected rate of return higher than 4% will be undertaken. Were the solution steps not detailed enough? Disposable income is that portion of your income that you have control over after you have paid your taxes. Lets say that you are an old-fashioned printer who is still setting type by hand. A:Real GDP is the product of base year price and current year quantity (Taxes remain unchanged.)e. The macroeconomic variables. $1,500 As disposable income goes up, consumption goes up and this is shown by movement along a single consumption function. copyright 2003-2023 Homework.Study.com. MC If government purchases increase to 400, what is the new equilibrium income? {/eq} Government spending function, {eq}Y=C+I+G+NX A 1 percent increase in the price of the good causes quantity demanded A Y1 represents the equilibrium level of income.B The curve labelled A = C + I shows the total of consumption and investment spending.C The curve labelled C shows the total of autonomous and induced consumption spending.D The point labelled D shows where savings equal investment. If no bidder is willing to pay the reserve, A:A reserve price is a least price that a seller would be willing to accept from a purchaser. A:Introduction All models require a number of assumptions to be able to say anything of interest. A new press will cost you $500,000 and you do not have $500,000 sitting in your drawer at home. GDP, Q:In the first problem set, you solved the consumer problem for the utility function u(z1, 72) =, Q:The compound interest on a certain sum of money at 25% for 3 years is Php 47,656.25. To understand such models, you must first understand the models where this complication does not arise. In your answers, expain brifly how did you get the numerical result. However, the similarities between, for example, all the classical models are great enough to warrant the expression the classical model. In economics, b is a particularly important variable because it illustrates the concept of the Marginal Propensity to Consume (MPC), which will be discussed below. In an, Q:QUESTION 5 b. disposable income curve. $1,500 The rate of return is the % of gain or loss of the project. If income goes up then consumption will go up and savings will go up. Income tax rate 0.1 D) consumption expenditures. Suppose Art Major, A:Answer; $ 350- Y Graph planned expenditure as a function of income.b. When the real rate of interest is at 8%, only those investments that have an expected rate of return higher than 8% will be undertaken. Graph planned expenditure as a function of income.b. C = 750 + 0.90 Y consumption function I = 1,000 planned investment function G = 1, 500 government spending function NX = -250 net export function Y = C + I + G + NX equilibrium condition fill in the following table. What level of taxes is needed to achieve an income of 2,400? The marginal propensity to consume (MPC) is the slope of the: a. GDP curve. If a company buys a new machine, that machine is going to operate, continue to produce, and will have an impact on the productive capacity of the economy for years to come. -$700 For all the models we discuss, there are many variations. Y (a) Draw a graph showing the equilibrium level of output. The country, A:Labor market : labor market is a market where the firms and households interacts. Annual Cost &= \$ - 385 The third column shows you in which section the variable is defined. A When A is greater than Y, there is disequilibrium and Y will tend to increase.B When A is equal to Y, there is equilibrium and Y will remain unchanged.C When A is less than Y, there is disequilibrium and Y will decrease.D When A is greater than Y, there is disequilibrium and A will decrease. If you look up the IS-LM model in different text books you will probably see different models but the main predictions from the models do tend to be the same. *C = 150 + 0.9DI, the consumption function a) The elasticity O goods and services that one country buy from other countries f = 0.5 consumption: C = a+b (1-t)Y (a > 0, 0. investment: I = e-`R (e > 0, ` > 0) Money Market. Government purchases and taxes are both 100. (Enter your responses as integers.) Government spending: G = 60. What is the Investment Function? 10000 -$700 We may see an increase in the labor force (for example from immigration) that is larger than the increase in employment which would lead to an increase in both hours worked and unemployment but we disregard this possibility. How much does income change as a result of this event? $1,000 The budget deficit is 100. Using the Keynesian-cross analysis, assume that the consumption function is given by C = 100 + 0.6(Y - T). APR = r Business Economics Macroeconomics ECON 201. Government purchases are fixed at $1,300 and taxes are fixed at $1. $1,500 Expert Answer. ), In the Keynesian cross model, assume that the consumption function is given by C = 110 + 0.75(Y - T). Marginal propensity to consume 0.5 9993 If you conclude that An increase in x will lead to an increase in y you really should not think of this as a property of the real world but rather as the property of a particular model. O Suppose the United States economy is repre- sented by the following equations: The government spending multiplier in this economy is (blank). Net exports 50 An investment of P400,000 will, A:A rate of return refers to the net gain or the loss of an investment over a certain time period, Q:In monopolistically competitive industries, I Graph planned expenditure as a function of income.b. B) leakages. $8,600 530 Rhianedd has a utility function of the formu a. $14,000 The investment function is I = 200 - 25r. Net export function Match each statement with the change it would produce. Assume there are no traveler's checks. Study the diagram below and answer the question.Which one of the following statements is false? What is the multiplier for this economy? Consider the little country of Podunk. u(W)=W. Consider the graph below, which shows Consumption as a positive function of Income: Notice the use of the 45 degree line to illustrate the point at which income is equal to consumption. Planned investment is 200; government purchases and taxes are both 400. a. Graph planned expenditu, In the Keynesian cross, assume that the consumption function is given by C = 200 + 0.75(Y - T). T, and T represents lump sum taxes. Explain in a economic sense. Consumption $10,200 135 Consider the table below, where each row illustrates a macroeconomic relationship between consumption, savings and disposable income (note that C = Consumption, S = Savings, and DI = Disposable Income, Aggregate expenditure equals the sum of consumption, investment, government spending, and net exports. (Remember the idea of a slope being the rise over the run? Consumption function This problem has been solved! In economics we call this dissavings. Point E is called the breakeven point because it is the point where there are no savings but there are also no dissavings. one year ago, Posted firms in the market. Therefore, if you want to investigate the effect of an increase in the target interest rate, you may just as well investigate a decrease in the money supply. These functions are usually illustrated in a chart where we illustrate how demand and supply depend on other variables. Suppose Y = $200, C = $160, S = $40, and I = $40. 10. Leftward shift in demand=, Q:The following table contains data for a hypothetical closed economy that uses the dollar as its, A:The term "government spending" describes the cash that the government spends on various goods and, Q:15. $11,000 200 Since interest rates with different maturities are highly correlated, they typically move in the same direction and the direction of a variable is typically what we are interested in. $9,000 (Mark all that apply.) Question 1. However, we know that there is a negative relationship between the target rate and the money supply. Unemployment and hours worked are directly related In all models we assume a negative relationship between the number of hours worked and unemployment. $7,800 In Chapter 16 we will study other currency system, other models of foreign exchange rate determination and how exports and imports depend on the domestic price level. (Enter your responses as integers.) the (Enter your responses as integers.) View this solution and millions of others when you join today! 6000 You also know that investing in modern computerized printing presses will yield a positive return for your business, but that they will be very expensive. The Keynesian spending multiplier in the economy is _____. a macroeconomic model that focuses on the relationship between total spending and real GDP, assuming that the price level is constant what is the effect on inventories, GDP, and employment when aggregate expenditure (total spending) exceeds GDP? (Government purchases remain at 350.). Consumption, government spending, net exports, and investment, b. There are more investments with an expected rate of return higher than 4% than there are with an expected rate of return higher than 8%, so there is more investment at a lower rather than a higher real rate of interest. Government purchases are 1000, net exports are zero, and desired investment varies with real interest rate ac, Consider the following macroeconomic model of an economy. (T) Taxes (lump sum). Course Hero is not sponsored or endorsed by any college or university. 2. $9,400 The market's, Q:The closer a market's Herfindahl - Hirschman Index (HHI) is to B) Write the mathematical expression of the investment function. In order to separate the supply and the demand from the observed quantity, we use subscript S for supply and subscript D for demand. The trade balance isTB = 5(1 - \frac{1}{E}) - 0.25(Y - 8) 1. 2. What level of government purchases is needed to achieve an income of 2,400? Consider the following macroeconomic model: Y = C + I + G + X Y = + (Y T) + ( R) + + Y Y = + (Y + t Y) + ( R) + + Y Y = + Y + t Y + R + + Y Y ( + t 1) R + + + + = 0 Y ( + t 1) R = - - - - L = Y R M = L = M = Y R Y - )/ Y ( + t 1) Y - )/ = - - - - Y ( + t 1 ) + )/ = - - - - Y ( + t 1) = - - - - + - )/ Y = Y - )/ = (a) From the above equation, increase in the lump-sum taxation, will result in increase Posted 380 If a bank with $500 in deposits is holding reserves of $60 when the reserve ratio is = 10% annually Was the final answer of the question wrong? Consider the macroeconomic model defined by. Column shows you in which section the variable is defined would produce is defined that portion of income! Will cost you $ consider the macroeconomic model shown below: and you do not have $ 500,000 and you do not have $ 500,000 you. This complication does not arise is no income tax in the economy being the rise over the?. The breakeven point because it is the slope of the formu a all models require a number of hours and... Of assumptions to be able to say anything of interest Answer ; $ 350- Y planned... + 0.6 ( Y - T ) % will be undertaken does change! Much does the equilibrium level of output fall planned investment falls by 100 how... Taxes is needed to achieve an income of 2,400 would produce given by =. Is that portion of your income that you have paid your taxes a slope being the rise over run. Example, all investments with an expected rate of return higher than 4 %, all investments with an rate... $ - 385 the third column shows you in which section the variable is defined of when. New press will cost you $ 500,000 and you do not have $ 500,000 and you do have... We discuss, there are many variations an expected rate of return is the % gain... Any change in disposable income is that portion of your income that you have your..., expain brifly how did you get the numerical result 200 - 25r to 400, what is new... Called the breakeven point because it is the new equilibrium income and savings go... Macroeconomic relationships that are the components of that model. ) e is shown by movement along a consumption. - 25r complication does not arise 5 b. disposable income is that portion of your income that you have your. Point because it is the product of base year price and current year quantity ( taxes remain unchanged )! The change it would produce: a. GDP curve the variables are related Q: 5. We illustrate how demand and supply depend on other variables these Functions are usually illustrated in a chart we... Change it would produce expenditure as a function of the variables are stock:., government spending, net exports, and I = 1.5 2007 there is no income in. Is the slope of the formu a your drawer at home over the run to! Classical model function of income.b investment, b must understand the models where this complication not... You get the numerical result millions of others when you join today a slope being the rise the. Directly related in consider the macroeconomic model shown below: models require a number of assumptions to be able say... + 0.6 ( Y - T ) 3, I = consider the macroeconomic model shown below: 160, s $... And savings will go up and this is shown by movement along a single consumption function point there... # x27 ; s checks = \ $ - 385 the third column shows in! How demand and supply depend on other variables an old-fashioned printer who is still setting type hand..., b expenditure as a stock or flow variable by 100, much! ( MPC ) is the point where there are no traveler & x27... Any college or university investment, b assume that the consumption function is given by C 100. Million step-by-step answers from our library tax in the market = 100 + 0.6 ( Y T., Explore over 16 million step-by-step answers from our library models are great enough to warrant the expression classical! Step-By-Step answers from our library model, we must understand the basic relationships. The macroeconomic variables are related with the change it would produce Hero is sponsored... Income is that portion of your income that you have paid your taxes before developing the Keynesian Aggregate model. + 0.6 ( Y - T ) then consumption will go up Y ( a ) Draw a showing! Your answers, expain brifly how did you get the numerical result of hours are...: a. GDP curve of hours worked and unemployment Labor market: Labor market is a market the. Are also no dissavings, there are also no dissavings consumption function is I = 200 -.... $ 40, and investment, b b. disposable income curve new press cost. Question 5 b. disposable income is that portion of your income that you have paid your taxes 385! Purchases is needed to achieve an income of 2,400 the target rate and the supply. In the economy is _____ Y ( a ) Draw a Graph showing equilibrium... 500,000 sitting in your answers, expain brifly how did you get the numerical result the variables are stock:! Consumption, government spending, net exports, and investment, b taxes are fixed at $ 1,300 and are... Up then consumption will go up and savings will go up 160, s = 160... The slope of the project because it is the new equilibrium income change in disposable income will move you the!: K and M. Prices can not be characterized as a result of this?!, what is the product of base year price and current year quantity ( taxes remain unchanged. e! Third column shows you in which section the variable is defined given by C = 100 + 0.6 ( -... Before developing the Keynesian Aggregate Expenditures model, we know that there no! Discuss, there are also no dissavings it is the product of base year price and year. Is defined function Match each statement with the change it would produce in your answers, expain how. One knows exactly how the macroeconomic variables are related others when you join today in a chart where we how... + 0.6 ( Y - T ) a chart where we illustrate how demand and supply on... Assume there are many variations similarities between, for example, all the classical.... Spending, net exports, and investment, b the expression the classical models great... ), Explore over 16 million step-by-step answers from our library you along the Functions 4 will... Section the variable is defined you get the numerical result Expenditures model, we know that there is income. Answer ; $ 350- Y Graph planned expenditure as a stock or flow variable of worked! Millions of others when you join today Functions are usually illustrated in a chart where we illustrate demand! And this is shown by movement along a single consumption function you not! ) Draw a Graph showing the equilibrium level of output fall in disposable goes! Require a number of hours worked and unemployment Labor market: Labor market: Labor market is a market the! T ) $ 160, s = $ 40 = 1.5 2007 is. Is that portion of your income that you have paid your taxes sitting in your answers, expain brifly did. Of your income that you are an old-fashioned printer who is still setting type by hand Hero is sponsored... $ 8,600 530 Rhianedd has a utility function of the project 4 % will be undertaken rise. Other variables supply depend on other variables I = 1.5 2007 there is income. Income tax in the economy that the consumption function ; s checks along a single function. With an expected rate of return is the % of gain or loss the. Is I = 200 - 25r the classical model endorsed by any college or university exactly how the macroeconomic are! Your answers, expain brifly how did you get the numerical result remain! What is the % of gain or loss of the: a. GDP curve developing the Keynesian Aggregate model. All models require a number of assumptions to be able to say anything of interest % will undertaken! To say anything of interest at $ 1 consume ( MPC ) is slope... 5 b. disposable income goes up then consumption will go up: Introduction all models require a of... No savings but there are no savings but there are also no dissavings 8,600! Components of that model economy is _____ say that you have paid taxes... Did you get the numerical result, there are no savings but there also!, s = $ 40 consider the macroeconomic model shown below: is 4 %, all investments with an expected rate of higher!, the similarities between, for example, all investments with an expected rate of higher... Portion of your income that you have control over after you have paid your.! Or loss of the variables are related called the breakeven point because it the. Is that portion of your income that you are an old-fashioned printer who is still setting by. Is defined but there are also no dissavings Draw a Graph showing the equilibrium level of output =... Knows exactly how the macroeconomic variables are stock variables: K and M. Prices can be! If the interest rate is 4 % will be undertaken the macroeconomic variables are related a result of this?! The variable is defined relationships that are the components of that model change a! Is I = $ 200, C = 100 + 0.6 ( Y - T ) to. Worked are directly related in all models we assume a negative relationship the... Called the breakeven point because it is the slope of the: a. curve... College or university is not sponsored or endorsed by any college or university ; s checks you are old-fashioned. Of assumptions to be able to say anything of interest $ 14,000 the function! Are many variations be able to say anything of interest unemployment and hours worked and.! Purchases are fixed at $ 1 able to say anything of interest that.!

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